COURT OF CHANCERY
OF THE
STATE OF DELAWARE
LORI W. WILL LEONARD L. WILLIAMS JUSTICE CENTER
VICE CHANCELLOR 500 N. KING STREET, SUITE 11400
WILMINGTON, DELAWARE 19801-3734
Date Submitted: May 3, 2022
Date Decided: May 5, 2022
A. Thompson Bayliss, Esquire Raymond J. DiCamillo, Esquire
Michael A. Barlow, Esquire Kevin M. Gallagher, Esquire
Eliezer Y. Feinstein, Esquire Daniel E. Kaprow, Esquire
Abrams & Bayliss LLP Caroline M. McDonough, Esquire
20 Montchanin Road, Suite 200 Richards, Layton & Finger, P.A.
Wilmington, Delaware 19807 920 North King Street
Wilmington, Delaware 19801
Peter J. Walsh, Jr., Esquire
Matthew F. Davis, Esquire
Abraham C. Schneider, Esquire
Patrick A. Lockwood, Esquire
Potter Anderson & Corroon LLP
1313 North Market Street, 6th Floor
Wilmington, Delaware 19801
RE: In re Aerojet Rocketdyne Holdings, Inc.
C.A. No. 2022-0127-LWW
Dear Counsel:
This decision resolves plaintiff Warren G. Lichtenstein’s motion to compel.
He seeks documents withheld by the defendants and their outside counsel on the
basis of the Aerojet Rocketdyne Holdings, Inc.’s (“Aerojet” or the “Company”)
privilege. Lichtenstein and his three fellow plaintiffs (who join in the motion)
comprise half of Aerojet’s board of directors (the “Board”) and are director
nominees on a slate advanced by a Lichtenstein-affiliated entity in an ongoing
C.A. No. 2022-0127-LWW
May 9, 2022
Page 2 of 17
proxy contest. The four defendants comprise the other half of the Board and are
nominees on a competing slate.
This court previously entered a temporary restraining order preventing either
Board faction from acting unilaterally on the Company’s behalf or using its
resources in connection with the upcoming director election. Lichtenstein’s
motion asks that the neutrality principles underlying the court’s order be extended
to the use of the Company’s privilege. It raises an unusual question: where two
halves of a deadlocked board are competing in a proxy contest, can one half assert
the corporation’s privilege against the other? I conclude that, in these
circumstances, it cannot.
For the reasons explained below, the plaintiffs are entitled to discovery of
certain of the Company’s privileged information. The defendants have no greater
claim to the Company’s privilege than the plaintiffs, who are joint clients of
Company counsel. The plaintiffs and defendants are adverse to one another—at
least in the context of the proxy contest. But it does not follow that one faction of
the Board is adverse to Aerojet because the other is aligned with management.
The even division of the Board means that neither side can benefit from the
Company’s resources—including its privilege—to the exclusion of the other. The
motion to compel is therefore granted.
C.A. No. 2022-0127-LWW
May 9, 2022
Page 3 of 17
I. BACKGROUND
Plaintiffs Lichtenstein, James R. Henderson, Audrey A. McNiff, and Martin
Turchin filed this litigation against defendants Eileen P. Drake, Thomas A.
Corcoran, Kevin P. Chilton, and Lance W. Lord on February 7, 2022.1
Lichtenstein is Aerojet’s Executive Chairman and a major Aerojet stockholder
through Steel Partners Holdings L.P. (together with its affiliates, “Steel”).2 Drake
is the Company’s Chief Executive Officer and President.3
Tensions between Lichtenstein and Drake purportedly developed in late
2020 while the Company was negotiating a merger agreement with Lockheed
Martin Corporation. Drake alleged that Lichtenstein—who wanted Aerojet to
approach other possible bidders—was “laying the ground work . . . to remove [her]
as CEO so he [could] pursue his strategy and personally benefit financially.”4 On
October 13, 2021, the Board formed a committee consisting of the other six
1
Verified Compl. for Declaratory J. (“Compl.”) ¶¶ 36-39, 41-44 (Dkt. 1).
2
Id. ¶ 36. More specifically, Lichtenstein is the Executive Chairman of Steel Partners
Holdings GP Inc., the general partner of Steel Partners Holdings L.P., which held roughly
5.5% of Aerojet’s outstanding common stock through an indirect subsidiary when the
Complaint was filed. Id.
3
Id. ¶ 41.
4
Id. ¶¶ 14-15, 18-19.
C.A. No. 2022-0127-LWW
May 9, 2022
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members of the Board (the “Non-Management Committee”) to investigate Drake’s
allegations.5
On January 25, 2022, the Federal Trade Commission sued to block the
Company’s merger with Lockheed.6 In the days following, the Board—facing the
strong possibility that the merger would not close and a fast-approaching
February 5 advance notice bylaw deadline—was unable to reach an agreement on
the composition of a slate of director nominees for the 2022 annual meeting.7
On January 28, 2022, Steel delivered a notice to the Company nominating
seven director candidates for election.8 Steel’s slate included four incumbent
members of the Board—the plaintiffs in this litigation.9 The Company’s six
independent directors met to attempt to agree to a compromise slate in late January
but never reached a final agreement.10 Steel amended its Schedule 13D on
February 1, 2022 to disclose the nomination of its slate.11
5
Id. ¶¶ 18-19; see Pl. Warren G. Lichtenstein’s Mot. to Compel (“Mot. to Compel”) Ex. I
(Dkt. 140); Mot. to Compel ¶ 18.
6
Compl. ¶ 20.
7
Id. ¶¶ 21-24.
8
Id. ¶ 25.
9
Id.
10
Id. ¶¶ 26-27.
11
Id. ¶ 28.
C.A. No. 2022-0127-LWW
May 9, 2022
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Later that day and on February 2, 2022, the defendants, without consulting
the rest of the Board, caused the Company to issue a press release and submit
related public filings signed by the Company’s general counsel.12 The press
release disclosed the Non-Management Committee’s investigation and purported
to speak on behalf of the Company, expressing “disappointment” with
Lichtenstein’s decision to launch a “disruptive” proxy contest.13 On February 3,
2022, the Company’s longtime outside counsel, Gibson Dunn & Crutcher LLP,
writing in their “capacity as litigation counsel” for Aerojet, told the plaintiffs that
their actions in connection with the proxy contest were “bad faith” breaches of
fiduciary duty.14
The plaintiffs’ Verified Complaint for Declaratory Judgment followed on
February 7, 2022, along with motions to expedite and for a temporary restraining
order.15 The Complaint seeks two declaratory judgments intended to maintain the
Company’s neutrality with respect to the proxy contest: the first stating that
Aerojet officers, directors, and employees, among others, cannot act on the
Company’s behalf without Board authorization; and the second stating that such
12
Id. ¶ 74.
13
Id. ¶ 75.
14
Id. ¶ 78; Compl. Ex. A.
15
Dkt. 1.
C.A. No. 2022-0127-LWW
May 9, 2022
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individuals cannot take actions on the Company’s behalf supporting either slate of
director nominees so long as the Board remains split.16
On February 10, 2022, Gibson Dunn sent an engagement letter to the
defendants informing them that Aerojet had agreed to be jointly represented by the
firm and to pay Gibson Dunn’s fees in connection with the joint representation.17
The defendants signed the letter over the coming days.18 On February 11, 2022,
the defendants—individually and derivatively on behalf of Aerojet—and
(purportedly) the Company brought suit against the plaintiffs. Gibson Dunn served
as litigation counsel to the Aerojet and the defendants.19 The defendants
voluntarily dismissed their claims without prejudice on March 7, 2022.20
On February 15, 2022, I granted the plaintiffs’ motions to expedite and for a
temporary restraining order.21 The temporary restraining order required the
Company and its advisors to remain neutral regarding issues over which the Board
was divided.22 The order also required Gibson Dunn and Richards, Layton &
16
Compl. ¶¶ 95, 100.
17
Defs.’ and Non-Party Gibson Dunn & Crutcher LLP’s Opp’n to Pl. Warren G.
Lichtenstein’s Mot. to Compel (“Defs.’ Opp’n”) Ex. 1 (Dkt. 160).
18
Id.
19
C.A. No. 2022-0146-LWW, Dkt. 1.
20
Dkt. 55.
21
Dkt. 38.
22
Temporary Restraining Order ¶ 2 (Dkt. 41).
C.A. No. 2022-0127-LWW
May 9, 2022
Page 7 of 17
Finger, P.A. to withdraw as Company counsel in connection with this litigation.23
After a motion to enforce the temporary restraining order was filed and granted,
those firms sought leave to withdraw as counsel for Aerojet on March 9, 2022.24
The motion to withdraw was granted on April 20, 2022, following considerable
delay in the retention of neutral counsel for the Company.25
The present motion arises from 46 document requests the plaintiffs served
on the defendants and a subpoena duces tecum served on Gibson Dunn.26 After the
defendants and Gibson Dunn served their written responses and objections,27
Lichtenstein sought confirmation from the defendants that they would not seek to
invoke the Company’s attorney-client privilege against him “other than to protect
(a) confidential communications internal to the Non-Management Committee and
its counsel; or (b) confidential communications regarding the substance of the
internal investigation of Mr. Lichtenstein after the formation of the Non-
Management Committee on October 13, 2021.”28 The defendants rejected that
23
Id. ¶ 7.
24
Dkts. 70, 96.
25
Dkt. 133.
26
Dkts. 53, 66; see Mot. to Compel Ex. H.
27
Dkt. 91; Mot. to Compel Ex. L.
28
Mot. to Compel Ex. I.
C.A. No. 2022-0127-LWW
May 9, 2022
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request on April 20.29 Gibson Dunn also confirmed that, in its view, the plaintiffs’
subpoena sought documents and communications protected by the attorney-client
privilege, which it could not waive.30
Lichtenstein filed this motion to compel on April 21, 2022.31 He seeks an
order requiring that the defendants and Gibson Dunn to produce documents
withheld on the basis of Aerojet’s privilege and that the Company direct its
advisors to produce any information they are currently withholding on the basis of
the Company’s privilege.32 Two broad categories of documents are in play:
(1) documents dated before October 13, 2021, when a special committee was
formed to investigate Mr. Lichtenstein’s alleged misconduct, and (2) documents
dated after October 13, 2021. Henderson, McNiff, and Turchin filed a joinder to
Lichtenstein’s motion on April 22, 2022.33
Lichtenstein contends that, as a sitting director, his access to the Company’s
privileged information is on equal footing with the rest of the Board unless it falls
within the narrow confines of the Non-Management Committee’s investigation.
29
Mot. to Compel Ex. K.
30
Mot. to Compel Ex. N.
31
Dkt. 140.
32
Mot. to Compel ¶ 13.
33
Dkt. 143.
C.A. No. 2022-0127-LWW
May 9, 2022
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His position relies on his broad information rights as a director and principles of
corporate neutrality.
The defendants argue that the plaintiffs are not entitled to the Company’s
privileged information because they seek it in furtherance of their proxy contest
rather than their fiduciary duties. The defendants further aver that the plaintiffs
became adverse to the Company, such that they could no longer expect to be
within its privilege, by no later than the time that Steel delivered its nomination
notice. They also contend that—even if the plaintiffs were given access to
Company privileged information—the court should deny discovery into
communications subject to a joint privilege between the Company and defendants.
II. LEGAL ANALYSIS
Under Delaware law, a corporation generally cannot assert the attorney-
client privilege “to deny a director access to legal advice furnished to the board
during the director’s tenure.”34 A director’s right to information is “essentially
34
Moore Bus. Forms, Inc. v. Cordant Hldgs., 1996 WL 307444, at *4 (Del. Ch. June 4,
1996).
C.A. No. 2022-0127-LWW
May 9, 2022
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unfettered in nature”35 and includes “equal access to board information.”36 The
right arises from a director’s duty “to protect and serve the corporation.”37
There are three recognized limitations on a director’s right to access:
First, a “director’s right can be diminished by an ex ante
agreement among the contracting parties.” Second, the
board can form a special committee excluding a director,
and that committee “would [be] free to retain separate
legal counsel, and its communications with that counsel
would [be] properly protected.” Third, privileged
information can be withheld from a director “once
sufficient adversity exists between the director and the
corporation such that the director could no longer have a
reasonable expectation that he was a client of the board’s
counsel.”38
The first limitation is not at issue here. No ex ante agreement limited the
Aerojet directors’ access to information.
The second limitation is implicated but not in serious dispute. It allows a
board committee formed with the excluded director’s knowledge to engage in
privileged communications with its counsel, “at least to the extent necessary for the
committee’s ongoing work, such as conducting a special committee investigation
35
Schoon v. Troy Corp., 2006 WL 1851481, at *1 n.8 (Del. Ch. June 27, 2006).
36
Moore Bus. Forms., 1996 WL 307444, at *5.
37
Henshaw v. Am. Cement Corp., 252 A.2d 125, 128 (Del. Ch. 1969); see SerVaas v.
Ford Smart Mobility LLC, 2021 WL 5226487, at *3 (Del. Ch. Nov. 9, 2021).
38
Ford Smart Mobility, 2021 WL 5226487, at *2 (quoting Kalisman, 2013 WL 1668205,
at *4-5 (Del. Ch. Apr. 17, 2013)).
C.A. No. 2022-0127-LWW
May 9, 2022
Page 11 of 17
or negotiating an interested transaction.”39 Lichtenstein acknowledges that he is
not entitled to confidential communications post-dating the Non-Management
Committee’s formation on October 13, 2021 that concern the substance of its
investigation. And the defendants do not meaningfully argue that he is not entitled
to communications created, sent, or received before that date. There is no
indication that Lichtenstein had reason to believe that he would be the subject of a
Company investigation before the Committee’s formation.40 Instead, the
defendants’ arguments concerning pre-October 13, 2021 documents concern
focus—unpersuasively—on relevance.41
39
In re CBS Corp. Litig., 2018 WL 3414163, at *4 (Del. Ch. July 13, 2018).
40
The defendants made a half-hearted argument at the motion to compel hearing that
adversity existed earlier because Lichtenstein received a cease-and-desist letter from the
Company’s non-executive directors in September 2021. Gibson Dunn & Crutcher’s Mot.
to Quash and for a Protective Order and Pl.’s Mot. to Compel Hr’g Tr. May 3, 2022, at
38-39 (Dkt. 202); see Defs.’ Opp’n ¶ 6. The directive followed statements made by
Lichtenstein about a possible merger between the Company and Lockheed Martin. Id. To
the extent that letter created any form of adversity, that adversity would only exist
regarding the potential merger. See In re CBS, 2018 WL 3414163, at *7 (granting motion
to compel “other than [with respect to] the matters falling within” the specific subject of
adversity).
41
The defendants’ written responses to the plaintiffs’ document requests include
numerous relevance objections. Lichtenstein’s motion states that it addresses only the
“privilege objections” and that Lichtenstein “reserves the right to challenge [defendants’]
other meritless objections.” Mot. to Compel n. 2. The defendants’ opposition, however,
argues that the irrelevance of documents sought provides grounds to deny the motion.
For example, they argue that, because the proxy contest arose in early 2022, documents
from before October 13, 2021 are irrelevant. Defs.’ Opp’n ¶ 28. To the extent that
relevance is even a question before me, it bears emphasizing that the scope of discovery
is “broad and far-reaching.” Cal. Pub. Emps. Ret. Sys. Coulter, 2004 WL 1238443, at *1
C.A. No. 2022-0127-LWW
May 9, 2022
Page 12 of 17
The parties’ disagreement centers on whether the adversity limitation
provides grounds for privileged documents and communications created after
October 13, 2021 (excluding those revealing the substance of the investigation) to
be withheld from the plaintiffs. Application of the adversity limitation “is assessed
in view of the reasonableness of a director’s own expectations.”42 According to the
defendants, the plaintiffs could not have reasonably expected to remain clients of
the Company’s counsel after Steel delivered its January 28, 2022 notice of intent to
nominate a slate of directors.43
The defendants assert that the plaintiffs are adverse to the Company because
of their alignment with Steel, which they paint as an activist investor engaged in a
takeover attempt. Yet each of the competing slates includes four incumbent
directors. One includes the Company’s Executive Chairman and the other its Chief
(Del. Ch. May 26, 2004) (quoting Pfizer, Inc. v. Warner-Lambert Co., 1999 WL
33236240, at *1 (Del. Ch. Dec. 8, 1999)). Documents from before October 13, 2021 that
bear on whether Company resources were misused to advance the interests of half of the
Board are sufficiently relevant.
42
In re Howard Midstream Energy P’rs, LLC, 2021 WL 4314111 (Del. Ch. Sept. 22,
2021).
43
See SBC Interactive, Inc. v. Corp. Media P’rs, 1997 WL 770715, at *6 (Del. Ch.
Dec. 9, 1997) (explaining that a director is normally “entitled to equal access to legal
advice furnished to the other board members” unless her interests “come into conflict
with the interests of the corporation on a given issue” and “appropriate governance
procedures” are employed such that the director no longer has “a reasonable expectation
that [s]he was a client of the board’s counsel on a par with the remaining directors”).
C.A. No. 2022-0127-LWW
May 9, 2022
Page 13 of 17
Executive Officer. Neither serves as the Company’s slate. Why one slate should
be considered hostile to the Company and the other friendly is unclear.
It is obvious that the plaintiffs and defendants have developed some
adversity toward one another. But that adversity is not to the Company. Setting
aside the substance of the investigation, both sets of directors remained entitled to
rely on the Company’s in-house and outside counsel for legal advice as joint
clients.44
44
See Kirby v. Kirby, 1987 WL 14862, at *7 (Del. Ch. July 29, 1987) (“The directors are
all responsible for the proper management of the corporation, and it seems consistent
with their joint obligations that they be treated as the ‘joint client’ when legal advice is
rendered to the corporation through of its officers or directors.”); In re WeWork Litig.,
250 A.3d 901, 910 (Del. Ch. 2020) (“It is because ‘directors are responsible for the
proper management of the corporation’ that they should ‘be treated as a joint client when
legal advice is rendered to the corporation through one of its directors or officers.’”
(quoting Kalisman, 2013 WL 1668205, at *4)); Kalisman, 2013 WL 1668205, at *4
(explaining that a joint client “has a right of equal access to the materials he seeks”—
communications with a common interest between joint counsel and other joint clients—
“in light of his status as a joint client of the subpoenaed law firms”). When former co-
clients become adverse and “sue one another, the default rule is that all communications
made in the course of the joint representation are discoverable.” In re Teleglobe
Commc’ns Corp., 493 F.3d 345, 366 (3d Cir. 2007) (applying Delaware law and citing
Delaware Rule of Evidence 502(d)(6)); see also In re Sutton, 1996 WL 659002, at *5
(Del. Super. Aug. 30, 1996) (describing Delaware Rule of Evidence 502(b)(5) as
“providing that where an attorney jointly represents two clients who later become
adversarial parties in litigation, one party cannot assert attorney-client privilege to avoid
disclosure of communications which were made during the joint representation.”);
Restatement (Third) of the Law Governing Lawyers § 75(2) (Am. Law. Inst. 2022)
(“Unless the co-clients have agreed otherwise, a communication [that otherwise would be
subject to attorney-client privilege] is not privileged as between the co-clients in a
subsequent adverse proceeding between them.”).
C.A. No. 2022-0127-LWW
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It would also defy the principles animating 8 Del. C. § 141(a) to find that
half of a board faction can rely on its association with management to benefit from
the protections of the company’s legal advice to the exclusion of their fellow
directors. Management of a Delaware corporation cannot unilaterally decide
which directors will receive which information.45 In In re WeWork, management
decided to withhold privileged information from a special committee.46 Chancellor
Bouchard explained that the application of the adversity limitation did not apply
because “the [corporation’s] governing body—the Board—made no decision to
withhold the Company’s privileged information.”47
It follows that the defendants’ alignment with Aerojet management cannot
provide them with a greater claim to the Company’s privilege than the plaintiffs.
As this court has previously explained, the defendants cannot “co-opt the
45
Hall v. Search Cap. Grp., Inc., 1996 WL 696921, at *2 (Del. Ch. Nov. 15, 1996)
(explaining that management “cannot pick and choose which directors will receive
[which] information”); In re WeWork, 250 A.3d at 909 (same).
46
250 A.3d at 909.
47
Id. (quoting Kalisman, 2013 WL 1668205, at *5); see id. at 911 (“[D]irectors of a
Delaware corporation are presumptively entitled to obtain the corporation’s privileged
information as a joint client of the corporation and any curtailment of that right cannot be
imposed unilaterally by corporate management untethered from the oversight and
ultimate authority of the corporation’s board of directors.”); Rainbow Navigation, Inc. v.
Yonge, 1988 WL 7389, at *1 (Del. Ch. Jan. 29, 1988) (ordering production of privileged
communications and documents to both sides during the pendency of a dispute over who
constituted the board).
C.A. No. 2022-0127-LWW
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company’s resources” to further a campaign against the plaintiffs’ proxy contest.48
“The privilege exists for the benefit of the corporation—not to any particular
corporate constituency,” including an individual director.49
The defendants further contend that the plaintiffs are not entitled to any
discovery related to Gibson Dunn’s joint representation of Aerojet and the
defendants in connection with this litigation. That representation was allegedly
entered into because “Aerojet [] agreed to such joint representation.”50
There are several problems with that argument. As an initial matter, it
would only apply after February 11, 2022 (the date the first defendant signed the
agreement) at the earliest—four days after the plaintiffs’ complaint and TRO
motion were filed and four days before the TRO was granted.51 More crucially,
there is a serious question of who could have validly authorized the joint defense
48
Dkt. 38 at 81.
49
Ford Smart Mobility, 2021 WL 5226487, at *3; see Cole v. Wilm. Mat’ls, Inc., 1993
WL 257415, at *1 (Del. Ch. July 1, 1993) (“It is elementary that when they represent a
corporation, lawyers represent the entity and do not thereby represent any single
corporate constituency.”); see generally Del. Lawyers’ R. Prof’l. Conduct 1.13.
50
Defs.’ Opp’n Ex. 1.
51
Id.
C.A. No. 2022-0127-LWW
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agreement on Aerojet’s behalf given the context of the representation and the lack
of Board approval.52
But providing the plaintiffs access to advice delivered to both Aerojet and
the defendants would not constitute a waiver in any event. Again, the plaintiffs—
as incumbent directors—are within the Company’s privilege and have access to
legal advice rendered to the corporation. The plaintiffs retained the right to the
legal advice Gibson Dunn delivered to the Company at least until the landscape
changed on March 9, 2022, when Gibson Dunn moved for leave to withdraw as
Aerojet’s counsel. The Delaware Rules of Evidence provide that “no privilege”
exists for communications “relevant to a matter of common interest between or
among [two] or more [of a lawyer’s] clients if the communication was made by
any of them to a lawyer retained or consulted in common, when offered in an
action between or among any of the clients.”53
52
At oral argument, the defendants referred the court to Rainbow Mountain, Inc. v.
Begeman for the proposition that management could hire corporate counsel without board
approval. 2019 WL 6724420 (Del. Ch. Dec. 5, 2019). The outcome in that case
depended on bylaws that explicitly gave the corporation’s president that power, however,
and no such argument has been made here. Id. at *2; see also Del. Lawyers’ R. Prof’l.
Conduct 1.13(e) (“A lawyer representing an organization may also represent any of its
directors, officers, employees, members, shareholders or other constituents, subject to the
provisions of Rule 1.7 [on conflicts of interest]. If the organization’s consent to the dual
representation is required by Rule 1.7, the consent shall be given by an appropriate
official of the organization other than the individual who is to be represented, or by the
shareholders.”).
53
D.R.E. 502(d)(6).
C.A. No. 2022-0127-LWW
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* * *
For these reasons, the motion to compel is granted. I encourage the parties
to discuss ways to continue to preserve the Company’s privilege in advance of
trial. Of course, the parties are bound to treat the information as confidential
pursuant to their fiduciary duties to Aerojet. But an additional tier to the
confidentiality order in this case or a proposed order pursuant to Delaware Rule of
Evidence Rule 510(f) may be useful.54
Sincerely yours,
/s/ Lori W. Will
Lori W. Will
Vice Chancellor
cc: All counsel of record (by File & ServeXpress)
54
This decision does not resolve Gibson Dunn’s Motion to Quash and For a Protective
Order, which will be addressed by the court separately. Dkt. 161.