Summary
In Klein, the defendant-corporation established an Evaluation Committee, comprised of three outside directors, in response to a shareholder demand letter and later expanded it to cover an investigation into matters raised in shareholder lawsuits.
Summary of this case from Hollinger Intern. Inc. v. Hollinger Inc.Opinion
CASE NO. 02-20170-CIV-GOLD/SIMONTON
September 26, 2003
Daniel Berger, Esq., Berger Montague, P.C., Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
David Berger, Esq., Berger Montague, P.C., Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
Todd S. Collins, Esq., Berger Montague, P.C., Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
Elizabeth W. Fox, Esq., Berger Montague, P.C., Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
Harvey W. Gurland, Jr., Esq., Duane Morris LLP, Miami, FL, for Pltffs. Oorbeek. Barman and the Phillips
Michael M. Baylson, Esq., Duane Morris LLP, Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
Sandra A. Jeskle, Esq., Duane Morris LLP, Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
Henry Lanman, Esq., Duane Morris LLP, Philadelphia, PA, for Pltffs. Oorbeek. Barman and the Phillips
Curtis V. Trinko, Esq., New York, NY, for Plaintiffs William and Stephen Klein
Neil DeYoung, Esq., New York, NY, for Plaintiffs William and Stephen Klein
Christopher S. Jones, Esq., Millberg Weiss, et al., Boca Raton, Florida, for Plaintiffs William and Stephen Klein
Kenneth J, Vianale, Esq., Boca Raton, Florida, for Plaintiffs William and Stephen Klein
C. Thomas Tew. Esq., Tew Cardenas Rebak Kellogg Lehman, et al., Miami, FL, for Defendants Arnelle, Barrat, Meall, Brown, Codina, Criser, Dolan, Dover, Dreyfoos, Lewis, Malek, and Tregurtha
Joseph A. DeMarla, Esq., Tew Cardenas Rebak Kellogg Lehman, et al., Miami, FL, for Defendants Arnelle, Barrat, Meall, Brown, Codina, Criser, Dolan, Dover, Dreyfoos, Lewis, Malek, and Tregurtha
Melanie Emmons Damian, Esq., Tew Cardenas Rebak Kellogg Lehman, et al., Miami, FL, for Defendants Arnelle, Barrat, Meall, Brown, Codina, Criser, Dolan, Dover, Dreyfoos, Lewis, Malek, and Tregurtha
Eugene E. Stearns, Esq., Stearns Weaver Miller Weissler Alhadeff Sitterson, P.A., Miami, FL, for Defendant FPL
Jennifer Buttrick, Esq., Stearns Weaver Miller Weissler Alhadeff Sitterson, P.A., Miami, FL, for Defendant FPL
Cecilia Duran Simmons, Esq., Stearns Weaver Miller Weissler Alhadeff Sitterson, P.A., Miami, FL, for Defendant FPL
Bruce E. Coolidge, Esq., Wilmer Cutler Pickering, Washington, DC, for Defendant FPL
Michael E. Gordon, Esq., Wilmer Cutler Pickering, Washington, DC, for Defendant FPL
Gary K. Harris, Esq., Boies, Schiller Flexner LLP, Orlando, FL, for Defendant FPL
Alvin Bruce Davis, Esq., Steel Hector Davil LLP, Miami, FL, for Defendant FPL
Thomas M. Karr, Esq., Steel Hector Davil LLP, Miami, FL, for Defendant FPL
Michael Nachwalter, Esq., Kenny Nachwalter et al., P.A., Miami, FL, for Defendants Broadhead, Coyle, Evanson, Hay, Kelleher, Olivera and Rodriquez
Jeffrey I. Foreman, Esq., Kenny Nachwalter et al., P.A., Miami, FL, for Defendants Broadhead, Coyle, Evanson, Hay, Kelleher, Olivera and Rodriquez
Elizabeth B. Honkenen, Esq., Kenny Nachwalter et al., P.A., Miami, FL, for Defendants Broadhead, Coyle, Evanson, Hay, Kelleher, Olivera and Rodriquez
M. Krista Barth, Esq., Eric M. Sauerberg, P.A. Palm Beach Gardens, FL, for Deft. Plunkett
T. Barry Kingham, Esq., Curtis, Mallet-Prevost, et al., New York, NY, for Deft. Plunkett
Nancy E. Delaney, Esq., Curtis, Mallet-Prevost, et al., New York, NY, for Deft. Plunkett
ORDER ON PENDING DISCOVERY MOTIONS
The discovery motions listed below are presently pending before this Court. The Honorable Alan S. Gold, United States District Judge, has referred all discovery motions to the undersigned Magistrate Judge to take all necessary and proper action as required by law (DE # 48). A hearing on these motions was held on February 12, 2003. All oral rulings made at the hearing, and the reasons stated on the record, are incorporated by reference in this Order.
1. Plaintiff Klein's Motion to Compel Production of Documents from Nominal Defendant FPL Group, Inc. ("FPL") (DE #117 filed In Case No. 02-20758-CIV); Opposition of FPL (02-20170: DE # 118; 02*20758: DE # 119); Plaintiff's Reply (02-20758: DE # 125); Plaintiff Klein's Supplemental Authority (DE # 171).
This motion, and Plaintiffs' Reply, were filed only in the administratively closed higher numbered Klein case.
2. Plaintiffs Oorbeek's and Berman's Motion to Compel Discovery (DE # 119); Opposition of FPL (DE # 124); Plaintiffs' Reply (DE # 126).
3. FPL's Motion to Limit Discovery (DE # 128); Plaintiffs Oorbeek's and Berman's Memorandum in Opposition (DE # 136); Plaintiff Klein's Response in Opposition (DE # 140); FPL's Reply (DE #145).
4. FPL's Emergency Motion for an Order of Protection (DE # 147); Plaintiff Klein's Response (DE # 149); Plaintiffs Oorbeek's and Berman's Memorandum in Opposition (DE # 150); Officer Defendants' Reply in support of FPL's Motion (DE #151).
5. Plaintiff Klein's Emergency Motion to Compel FPL to Answer Plaintiffs First and Second Set of Interrogatories (DE # 155); oral response furnished at hearing.
6. Plaintiff Klein's Emergency Motion to Compel Deposition Testimony (DE # 158); oral response furnished at hearing.
7. Plaintiff Klein's Motion to Compel Production of Documents from Defendant Armando Codina (DE ## 172, 173); Codina's Memorandum in Opposition (02-20758: DE # 137); Plaintiff Klein's Reply (DE # 178); Codina's Request for a Hearing (DE # 184).
This Response was filed only in the administratively closed higher numbered Klein case.
I. BACKGROUND
This section sets forth a general description of the background of these cases for the purpose of putting the present discovery disputes in context. It is not intended to be a comprehensive description of the claims, defenses or procedural events that have occurred in these cases.
A. The Oorbeek and Berman Complaint
On January 15, 2002, Plaintiffs Oorbeek and Berman filed a three-count Verified Complaint against nominal defendant FPL, Inc. and 21 various individuals who were either high level executives, officers and/or directors of FPL during the relevant time (hereafter the Plaintiffs are referred to collectively by reference as "Oorbeek"). The Plaintiffs are shareholders who seek a declaratory judgment and damages on behalf of nominal defendant FPL with respect to two matters, which are described in the Complaint as follows: "a) in connection with the issuance of materially false and misleading proxy statements with respect to a Long Term Incentive Plan ("LTIP") for highly compensated officers of FPL and it principal subsidiary, Florida Power and Light Company . . . and b) in connection with payments made under that plan. In connection with such payments, defendants have committed corporate waste at the expense of the FPL and its shareholders." (Complaint, DE #1, ¶ 1).
In Count 1 of the Complaint, Oorbeek alleges a violation of Section 14(a) of the 1934 Securities Exchange Act, 15 U.S.C. § 781, based upon allegedly false and misleading 1999 and 2000 Proxy Statements concerning change of control payments that may be made to, and retained by, high level executives based upon shareholder approval of a merger, even if the merger is not ultimately consummated (Complaint ¶¶ 66, 68, 69); and concerning the fact that some change of control payments may not be tax deductible (Complaint ¶¶ 67, 70). The basis for claiming that the Proxy Statements were false and misleading are various specified allegedly material omissions from those Statements. Oorbeek claims that this Count is not a derivative action; FPL claims that it is in essence a derivative claim, regardless of the characterization by Oorbeek (See, e.g., DE #135 n. 1).
Counts II and III of the Oorbeek Complaint state derivative claims against members of the FPL Board of Directors that issued the 1999 and 2000 Proxy Statements, and against the six non-board executive recipients of the LTIP change in control cash payments. In Count II, Plaintiffs assert a derivative action under Section 14(a) of the Securities Exchange Act based upon the same allegedly false and misleading Proxy Statements that formed the basis for Count I. In Count III, Plaintiffs assert a derivative claim under Florida law, against all defendants except FPL, for corporate waste, alleging that the Board approved materially false and misleading 1999 and 2000 Proxy Statements and caused FPL to make LTIP payments which were ultra vires because the shareholder votes which approved them were invalid, and that the Board failed to require repayment (Complaint ¶ 83); that the Board allowed payments which were unreasonably disproportionate to any benefit to the company or services rendered by the executives (Complaint ¶¶ 84, 86); and that the Board allowed payments which were not tax deductible (Complaint ¶ 85). Oorbeek claims that the LTIP did not authorize payment until a merger was consummated, and that the Proxy statements were misleading.
With respect to the derivative claims in Counts Il and III, the Plaintiffs allege that no demand was made on the Board of Directors of FPL to institute this action because such a demand would have been futile (Complaint ¶¶ 74, 75, 76).
B. The Klein Complaint
Plaintiff William Klein filed a one-count Verified Derivative Complaint on March 8, 2002, against nominal defendant FPL and 17 individuals who were directors and/or senior executive officers of FPL or its subsidiaries during the relevant time. These 17 individuals are included within the group of individual defendants in the Oorbeek Complaint. Klein alleges that the Board of FPL recklessly approved approximately $52 million In payments and accelerated benefits to high level executives under the LTIP9 when such payments were not authorized because there was no change In control that would trigger the obligation. Specifically, Klein contends that the change In control was not triggered by shareholder approval of the merger, but was only triggered upon consummation of the merger (Complaint ¶ 6, 7). In substance, the Complaint seeks a declaratory judgment and damages from the individual defendants based upon gross and reckless breaches of fiduciary duty in approving such payments and failing to demand their return, seeks restitution from defendants who received such payments, seeks a declaration that no LTIP payments are owed, and seeks an order requiring FPL to implement effective internal controls designed to monitor FPL's compliance with federal and state laws (Complaint ¶ 71).
Oorbeek has also sued defendants Lawrence Kelleher (Vice-President of Human Resources), Armando Olivera (Sr. Vice-President of Power Systems), Antonio Rodriguez (unspecified executive position) and Roger Young (President and a Director of FPL), who are not named in the Klein Complaint.
Klein made a written demand upon the Board of Directors on January 17, 2002 to bring this action (Complaint ¶ 9). On February 5, 2002, the Board acknowledged receipt of the Demand Letter, and stated that a Demand Evaluation Committee had been created, but as of the date of filing the Complaint, Klein had received no other response to the Demand Letter (Complaint ¶ 10). Klein further alleges that FPL has publicly stated that it has no intention of seeking the return of executive payments (Complaint ¶ 11).
C. The Phillips Complaint
On January 28, 2003, Plaintiffs Donald and Judith Phillips filed a Complaint against the same defendants sued in the Oorbeek Complaint (Case No. 03-20102). On March 6, 2003, the Phillips case was consolidated into the Klein and Oorbeek cases, and was administratively closed (02-20202: DE # 9). The Phillips Complaint is substantially similar to the Oorbeek Complaint.
D. FPL's Response
FPL established an Evaluation Committee on May 14, 2001, initially in response to a demand letter received from a shareholder Carlozzl, who is not a named plaintiff In either of these actions (DE #112 at 3). The Committee was comprised of three outside directors, Willard D. Dover, Robert M. Beall II, and Armando Codina. According to the Report, the Committee's mandate was later expanded to cover the matters raised by the Plaintiffs in the first two consolidated cases (DE #112 at 2 n. 2.).
The Report of the Evaluation Committee to the Board of Directors was initially filed under seal (02-20170: DE #99; 02-20758: DE #97). Subsequently, the Report was filed publicly, and is docketed as DE #112 (in 02-20170) and DE #111 (in 02-20758). References to the Report In this Order refer to the docket entry in 02-20170.
On June 21, 2002, the District Court stayed all proceedings in these cases, except for document production, until September 20, 2002 (later extended until September 27, 2002), pending the completion of the report of the Evaluation Committee (DE #86).
DE # 85 Is a transcript of the hearing regarding the entry of this stay.
On August 29, 2002, the Evaluation Committee issued its report, which was furnished to FPL and filed with the Court (DE #112). The Committee recommended that the Board seek dismissal of the shareholder lawsuits. FPL advised the Court that the Board of Directors met on September 12, 2002, (without the participation of the two interested directors-Lewis Hay and Paul Evanson) and agreed with the Report that pursuit of these lawsuits was not In the best interests of FPL or its shareholders generally. The Board authorized the Committee, through counsel, to file a Motion to Dismiss (DE #111).
On October 30, 2002, FPL filed its Motion to Dismiss both lawsuits (DE #122). The grounds for this motion are "(1) as to the Oorbeek complaint, the plaintiff shareholders Oorbeek and Berman failed to make a demand on the board of directors of FPL before Instituting the present derivative litigation and (2) as to the Klein complaint, a majority of the board of directors of FPL has determined that it would not be In the best Interests of FPL or its shareholders generally to pursue the claims sought to be asserted derivatively by plaintiff Klein" (DE # 122 at 2).
On March 21, 2003, FPL filed an initial Motion to Dismiss as to the Phillips Complaint, which it also stated was intended to serve as a supplement to the Motion to Dismiss previously filed as to the Klein Complaint (DE # 167 at 2). The basis for this motion is that Plaintiffs in both cases failed to make substantive demands on the board of directors prior to filing these lawsuits; specifically, FPL claims that the demand letters were "purely formal" and were insufficient to satisfy the requirement of a substantive demand under Florida law (DE # 167 at 3).
In a Joint Report for Pretrial Procedures and Trial filed on October 4, 2002, the parties agreed to the immediate commencement of all discovery related to the Motion to Dismiss, and agreed that FPL could file a motion to limit discovery to the Report and independence of the Evaluation Committee (DE # 114).
Although the Joint Report refers to the independence of the Evaluation Committee, the Motion to Limit Discovery correctly recognizes that the issue of independence relates to the Independence of all the outside directors who were decisionmakers, rather than only the three outside directors who were members of the Evaluation Committee (DE # 128).
II. FPL'S MOTION TO LIMIT DISCOVERY (DE # 128)
An overriding dispute that applies to all pending discovery motions concerns the scope of discovery permitted at this stage of the proceedings. This issue is addressed in FPL's Motion to Limit Discovery (DE # 128), and therefore this motion is considered first.
FPL argues that under Florida law the dispositive issues to be resolved in connection with their pending motions to dismiss are "whether the outside directors who made the decision to terminate this lawsuit were (i) independent, (ii) acted In good faith, and (iii) reached their decision after conducting a reasonable investigation" (DE # 128 at 3). FPL argues that if these three conditions are met, the Court should dismiss the actions, and, therefore, discovery at this stage of the proceedings should be limited to matters which are material to those three issues. FPL contends that any discovery which pertains to the merits of the lawsuit should be precluded, and that under Florida law, this Court is not permitted to exercise its own "independent business judgment" on the question of whether the corporation should pursue its claims.
In response, Plaintiff Klein argues that the Court has wide discretion in fashioning the limits of discovery, and that the Florida derivative litigation statute permits discovery to aid the Court in determining the independence, good faith and reasonableness of the investigation (DE # 140 at 3). Klein argues that this Court "has the authority under the Florida Statute both to examine the merits of the committee's investigation and report, the outside directors' recommendation to dismiss, and the discretion to undertake its own evaluation of the corporation's best interest" (DE # 136 at n. 7). Therefore, Klein argues that the Court should permit discovery regarding all matters relevant to this inquiry.
The parties agree that Florida law governs this dispute. See Kamen v. Kemper Financial Services, Inc., 500 U.S. 90 (1991); Burks v. Lasker, 441 U.S. 471 (1976); Peller v. Southern Co., 911 F.2d 1532, 1536 (11th Cir. 1990). The Florida statute governing Shareholders' derivative actions, FIa. Stat. § 607.07401, provides, in pertinent part:
(3) The court may dismiss a derivative proceeding if, on motion by the corporation, the court finds that one of the groups specified below has made a determination In good faith after conducting a reasonable Investigation upon which its conclusions are based that the maintenance of the derivative suit Is not in the best interests of the corporation. The corporation shall have the burden of proving the independence and good faith of the group making the determination and the reasonableness of the Investigation. The determination shall be made by:
(a) A majority vote of independent directors present at a meeting of the board of directors, if the independent directors constitute a quorum; [or]
(b) A majority vote of a committee consisting of two or more independent directors appointed by a majority vote of independent directors present at a meeting of the board of directors, whether or not such independent directors constitute a quorum;
In the case at bar, FPL has moved to dismiss this Complaint based upon the decision of the ten "outside" directors of FPL; i.e., the non-officer directors-H. Jesse Arnelle, Sherry S. Barrat, Robert M. Beall, II, J. Hyatt Brown, Armando M. Codina, Willard D. Dover, Alexander Dreyfoos, Jr., Frederic V. Malek, Paul R. Tregurtha, and Frank G. Zarb (DE # 123, Att. F). Directors Lewis Hay and Paul Evanson did not participate in this decision (DE # 122, An. F, 9/12/02 Board Minutes). The three members of the Evaluation Committee which recommended dismissal-Bead, Codina and Dover-are among the outside directors who made the decision.
The purpose of the screening mechanism set forth in the above statute, which was established to expeditiously filter out actions which do not benefit the corporation, would be defeated if Plaintiffs were permitted to embark on full discovery prior to the resolution of a motion to dismiss. The parties agree that discovery should be limited to the matters relevant to the motion to dismiss; however, as stated above, they disagree on the extent to which consideration of the merits plays a role In this determination. See American Law Institute's Principles of Corporate Governance § 7.13 (1994) (citing cases); Carol B. Swanson, Juggling Shareholder Rights and Strike Suits in Derivative Litigation: The ALI Drops the BaII, 77 Minn. L. Rev. 1339 (1993).
No Florida court has expressly construed the scope of judicial review or permissible discovery in the context of this statute. There are only two cases which provide some guidance. In DeMoya v. Fernandez, 559 So.2d 644 (FIa. 4th Dist. Ct App. 1990), the appellate court reversed the decision of the trial court which dismissed the shareholder's derivative action based upon motion of the court-appointed receiver. The court noted that the appellants did not contest the authority of the trial court to enter an order of dismissal based on "an objective recommendation by an independent and unbiased receiver or counsel for the corporation." Id. at 645. As the basis for the reversal, however, the Court stated that there was "insufficient evidence upon which to evaluate the thoroughness of the report or the independence of the receiver's attorney, whose recommendation was accepted by the court. In addition, the record reflects inadequate sworn testimony or evidence from which to make any findings." The court held that the objections raised by the plaintiffs "were sufficient to require either the protection of a summary judgment proceeding or an evidentiary hearing with respect to the disputed issues of bias, conflict of interest, objectivity and reasonableness in the preparation and presentation of the report." Id. at 645.
Based upon this result, the De Moya Court found it unnecessary to determine whether, in addition to the above requirements-which were characterized as the first-stage determination-the trial court was also required to engage in a second-stage determination in which the court exercised its independent business judgment as to the best interests of the corporation in deciding whether to accept the recommendation of dismissal contained in the receiver's report. The Court noted that this second stage determination was required under Delaware law, under the circumstances set forth In Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981). However, the Court also noted that the then-recently enacted Florida Business Corporation Act, which became effective after the decision In De Moya, "did not include the second stage determination."
Similarly, in McDonough v. Americom Int'l Corp., 905 F. Supp. 1016 (M.D. FIa. 1995), the District Court denied the defendants' motion to terminate the action under FIa. Stat. § 607.07401 based on the recommendation of a special litigation committee, on the ground that the defendants had failed to sustain their burden of establishing that the committee was independent, had acted in good faith, and had a reasonable basis for its report. In reaching this result, the court expressly declined to consider whether the court was required to make an independent business judgment regarding the best interest of the corporation prior to accepting the committee's recommendation.
Due to the absence of caselaw in Florida regarding the scope of discovery, the parties have relied upon cases from other courts. In this context, it is important to note that although the above statute is based on the Model Business Corporations Act, there are key differences between the Model Act as drafted, the modified version of the Model Act enacted by the Florida legislature, and the Model Act as enacted by various states. For example, the Model Business Corporations Act states that the Court "shall" dismiss the derivative proceeding if the specified conditions exist, whereas the Florida Business Corporations Act uses the seemingly more discretionary "may dismiss" language. In addition, although decisions rendered by the courts of Delaware are frequently regarded as persuasive by other courts, Including Florida, Delaware has no statute substantially similar to the above provisions of the Florida statute. However, Delaware law provides a framework for analysis.
The leading Delaware case governing the standards by which to determine motions to dismiss derivative actions Is Zapata v. Maldonado, supra. The Supreme Court of Delaware explained the balance that must be struck in determining when it is appropriate to dismiss such actions where the board has an inherent conflict of Interest and has therefore appointed an "Independent Investigation Committee" to make the decision:
If, on the one hand, corporations can consistently wrest bona fide derivative actions away from well-meaning derivative plaintiffs through the use of the committee mechanism, the derivative suit will lose much, if not all, of its generally-recognized effectiveness as an intra-corporate means of policing boards of directors. If, on the other hand, corporations are unable to rid themselves of meritless or harmful litigation and strike suits, the derivative action, created to benefit the corporation, will produce the opposite, unintended result. It thus appears desirable to us to find a balancing point where bona fide stockholder power to bring corporate causes of action cannot be unfairly trampled on by the board of directors, but the corporation can rid itself of detrimental litigation.
As we noted, the question has been treated by other courts as one of the "business judgment" of the board committee. If a "committee, composed of independent and disinterested directors, conducted a proper review of the matters before it, considered a variety of factors and reached in good faith, a business judgment that (the) action was not in the best interest of (the corporation)", the action must be dismissed. The issues become solely independence, good faith, and reasonable investigation. The ultimate conclusion of the committee, under that view, is not subject to judicial review.
We are not satisfied, however, that acceptance of the "business judgment" rational at this stage of derivative litigation is a proper balancing point. . . .
This is referred to by the Delaware courts as a "demand excused" case, since the otherwise required demand by the shareholder on the board is excused due to the futility of such a demand. Where there is no inherent conflict, and a demand is required, the "business judgment rule" governs review of the motion to dismiss under Delaware law.
. . . .
. . . [W]e must be mindful that directors are passing judgment on fellow directors in the same corporation and fellow directors, In this instance, who designated them to serve both as directors and committee members.
. . . .
. . . We thus steer a middle course between those cases which yield to the independent business judgment of a board committee and this case as determined below which would yield to unbridled plaintiff stockholder control.
430 A.2d at 786-88 (citations omitted). After setting forth these general principles, the Court described the procedures that would govern whether a shareholder's derivative action would be permitted to proceed:
After an objective and thorough investigation of a derivative suit, an independent committee may cause its corporation to file a pretrial motion to dismiss. . . . The motion should include a thorough written record of the investigation and its findings and recommendations. Under appropriate Court supervision, akin to proceedings on summary judgment, each side should have an opportunity to make a record on the motion. As to the limited issues presented by the motion noted below, the moving party should be prepared to meet the normal burden under Rule 56 that there is no genuine issue as to any material fact and that the moving party is entitled to dismiss as a matter of law. The Court should apply a two-step test to the motion.
First the Court should inquire into the independence and good faith of the committee and the bases supporting its conclusions. Limited discovery may be ordered to facilitate such Inquiries. The corporation should have the burden of proving independence, good faith and a reasonable investigation, rather than presuming independence, good faith and reasonableness. . . . If . . . the Court is satisfied under Rule 56 standards that the committee was independent and showed reasonable bases for good faith findings and recommendations, the Court may proceed in Its discretion, to the next step.
The second step provides, we believe, the essential key In striking the balance between legitimate corporate claims as expressed in a derivative stockholder suit and a corporation's best interests as expressed by an independent Investigating committee. The Court should determine, applying its own Independent business judgment, whether the motion should be granted. . . . The second step is intended to thwart instances where corporate actions meet the criteria of step one, but the result does not appear to satisfy the spirit, or where corporate actions would simply prematurely terminate a stockholder grievance deserving of further consideration in the corporation's interest.
430 A.2d at 788-89 (emphasis added, footnotes omitted).
Applying the above rationale and the Florida statute, it appears to the undersigned that whatever the decision of the District Court regarding the scope of judicial review, full discovery on the merits is not warranted prior to the disposition of the Motion to Dismiss; although, discovery should not be as limited as what is advocated by FPL. In addition to the issues of the independence and good faith of the board members who made the decision to file the Motion to Dismiss, the discovery needs to be broad enough to enable the Court to determine whether the decision was based on a "reasonable investigation." That determination necessarily implicates the merits of the controversy to at least a limited extent. In order for the Court to determine whether the investigation was conducted in good faith and was reasonable, the Court needs to know what was done, and what information was considered by the declsionmakers. However, full-blown discovery on the merits of the controversy is not required; even under the most expansive view of discovery espoused in Zapata, the Court referred to the "limited discovery" which would be permitted. Therefore, the undersigned has determined that even if this Court retains discretion to apply its "independent business Judgment," despite the omission of this step from the Florida statute, it should apply that Judgment based on the record created with respect to the first step of the determination.
Courts which have considered the scope of discovery have generally recognized the need to inquire into the depth of the investigation. For example, In Peller v. The Southern Co., 1988 WL 90840, at *4 (N.D. Ga. 1988), the Court held that, on the issue of good faith and reasonableness of the investigation, the following discovery would be permitted: "1) depositions of the members of the ILC [Independent Litigation Committee], 2) production of the list of documents reviewed by the ILC, 3) production of notes taken by ILC members during any interviews, and 4) production of minutes or notes taken during ILC meetings." Following discovery, the district court denied the motion to dismiss, noting that it was "troubled" by the almost exclusive reliance by the ILC on counsel to conduct the substantive investigation. The Court stated that the "conduct of the interviews is a most important factor in determining whether the ILC pursued its charge with diligence and zeal, or whether it played Softball with critical players. Plaintiff has not been given an opportunity to review the annotated summaries of interviews prepared by [counsel]. Thus, by relying on counsel to outline and to conduct all interviews and then prepare interview summaries that contain "privileged information", the ILC has insulated its investigation from scrutiny by plaintiff." Peller v. The Southern Co., 707 F. Supp. 525, 529 (N.D. Ga. 1988). On interlocutory appeal, the Eleventh Circuit affirmed the decision of the District Court. Peller v. The Southern Co., 911 F.2d 1532 (11th Cir. 1990). Relying on the above Peller trilogy, In Weiser v. New York, 683 N.Y.S.2d 781 (N.Y.Sup.Ct. 1998), the trial court in New York also approved discovery of documents upon which a Special Litigation Committee's report was based, although it permitted in camera submission of certain attorney summaries of witness interviews to protect the disclosure of counsel's mental impressions, conclusions, opinions or legal theories presented to the Committee. In Joy v. North, 692 F.2d 880, 893-94 (2d Cir. 1982), cert. denied, 460 U.S. 1051 (1983), the Second Circuit also endorsed a broad view of discovery with respect to the Committee's decision making process under Connecticut law:
[I]f the special litigation committee recommends termination and a motion for judgment follows, the committee must disclose to the court and the parties not only Its report but all underlying data. To the extent that communications arguably protected by the attorney-client privilege may be involved in that data, a motion for judgment based on the report waives the privilege. See In re John Doe Corp., 675 F.2d 482 (2d Cir. 1982). The work-product immunity will apply to the documents usually included within its terms to the extent that they are working papers of the committee's counsel and are not communicated to the committee. Once communicated, the immunity may not be claimed, since the papers may be part of the basis for the committee's recommendations.
See Strougo v. Bassini, 1999 WL 24919 (S.D.N.Y. 1999) (permitting inspection of documents made available to the Committee; inspection of notes of interviews and drafts of the Report; and depositions of Committee members; but denying deposition of counsel); Zitin v. Turley, 1991 WL 283814, at *6 (D. Ariz. 1991) (finding waiver of work product and attorney-client privilege and ordering production of attorney's interview notes: "It would be inequitable for the corporation to establish a committee to issue a report which determines the advisability of the suit, fail to provide to the plaintiffs/shareholders most of the underlying information as privileged and work product and yet rely on the Report as the basis for ending the case in a motion for summary judgment.")
Having reviewed all of the cases cited in the various memoranda filed by the parties, as well as those cited above, the undersigned concludes that discovery should be limited at this stage of the proceedings to the matters upon which the decision-makers relied, but that discovery should be permitted to test the reasonableness of the investigation undertaken. Thus, the Motion to Limit Discovery Is granted to the extent that discovery will be limited to the issues raised in the Motion to Dismiss. Specific discovery issues, including the applicability of the attorney-client privilege and work product doctrine are addressed In more detail below.
III. Plaintiff Klein's Motion to Compel Production of Documents from Nominal Defendant FPL Group. Inc. ("FPL") (DE 0117 filed In Case No. 02-20758-CIV)
Plaintiff Klein seeks to compel FPL to produce documents requested in the four following requests for production. In addition, Plaintiff Klein objects to the use of various general objections advanced by FPL. Those objections will be considered by the Court only insofar as they pertain to particular discovery disputes.
In ruling on these requests, which are duplicated to some extent by the Motion to Compel filed by Plaintiffs Oorbeek and Berman (DE # 119), the Court has considered the arguments presented in connection with that motion as well.
Request for Production ("RFP") # 4:
All documents which identify the persons who received the payments, their last known address, their position and name of employer, and the amount(s) received. (Note: This includes the 600-700 persons who received an additional $40 million in payments as represented in Court in this action on June 17, 2002). (Note: Summary documents containing this information are sufficient).
In response to this discovery request, FPL objected on the basis that it sought irrelevant Information and the production of personal and confidential information, but stated that, subject to those limitations, it would produce a summary document which reflected the information sought in this request (DE # 117 at 5). In its response in opposition to the Motion to Compel, FPL stated that it had produced "a chart identifying the persons that received part of the total LTIP payments of approximately $92 million and the amounts they received" as well as "work papers showing how FPL calculated the payments to the eight senior executives who received payments" (DE # 118 at 4). However, later in its response, FPL clarifies that it redacted the names and addresses of 686 FPL employees who received LTIP payments (DE # 118 at 9). FPL contends that the names and addresses of these persons constitute merits discovery which should not be permitted at this stage of the proceedings (DE # 118 at 4). At the hearing, FPL reiterated Its contention that there Is no legitimate need for the disclosure of this personal information until the resolution of the motion to dismiss.
Plaintiff Klein contends that it is entitled to this information since it identifies potential defendants who may be added to this lawsuit, and since FPL relied on the existence of these individuals as part of its rationale for seeking dismissal of this lawsuit (DE #163 at 86-88).
Having carefully reviewed the arguments of the parties, the undersigned concludes that the information redacted from the chart should be provided. The rationale for limiting discovery at this stage of the proceedings-to avoid unnecessary expense and burdensomeness is not compelling since it likely took more effort to redact the names and addresses than it would have taken to include this Information. Moreover, the names and addresses of these persons, who are potential parties to this action, are relevant to the claims asserted in this lawsuit. With respect to the privacy issues identified by FPL, Plaintiff Klein correctly points out that there is a confidentiality order in place which can be used to protect the disclosure of this sensitive financial information. Therefore, FPL is ordered to produce this information.
RFP # 8:
All documents which refer to or discuss FPL Group's April 2002 proposed modification of the "change of control" definition contained In FPL Group's Long Term Incentive Plan.
In response to this discovery request, FPL objected on the grounds that it called for information which is not relevant. In his motion to compel, Plaintiff Klein states that after the public began to question the large payments made under the LTIP, the FPL Board of Directors decided to modify the change of control language to make it clear that such payments would be made only on the completion of a merger, rather than upon shareholder approval, which was the triggering event in the case at bar (DE # 117 at 7). These amendments apparently occurred in November 2001 (DE # 118 at 10). Plaintiff Klein contends that these documents may shed light on the interpretation given by Board members to the language at issue in this case. In addition, Plaintiff Klein points to language in the SLC report which reflects that when the Entergy merger was abandoned, several outside directors were concerned about the fact that such payments had been made, and this led to the retention of outside counsel, the adoption of new change of control arrangements, and the formation of the Committee after a shareholder demand was received (DE # 117 at 8). Plaintiff Klein seeks to review this information on the theory that "if these outside directors were performing their due diligence and complying with their fiduciary obligations as directors, then how could they not be "concerned" with this situation before the merger caused the loss of nearly $100,000,000 to their company," and that the requested documents shed light on this determination (DE # 117 at 8).
It Is unclear why Plaintiff refers to an April 2002 date In the Interrogatory. However, this discrepancy in dates Is not material to the disposition of this lawsuit.
FPL responds that these documents are relevant only if the motion to dismiss is denied and Plaintiff Klein is permitted to challenge the LTIP decision on the merits. In addition, FPL contends that the main documents sought are privileged and confidential documents from the Skadden Arps law firm (DE # 118 at 11).
The undersigned agrees with FPL that legal advice it obtained after the interests of the shareholders became adverse to the Interests of FPL, remains privileged. Thus, the legal advice that Skadden Arps has provided, and their work product, remains privileged. However, documents which members of the board created or reviewed prior to the vote on September 12, 2002, to accept the Committee's recommendation regarding dismissal of this lawsuit, and which relate to the LTIP provisions at issue here, and the decision to modify those provisions, are not privileged and are relevant to the reasonableness and good faith of their investigation with respect to this lawsuit. The relevance of these documents is illustrated on the first page of the Committee's Report, which describes one of the questions raised as "Did the Board of Directors understand that approval of the merger and scheduling a shareholder vote to approve it would expose the Company to the risk that these obligations would be Incurred even if the merger was not consummated?" Although documents shedding light on this question clearly go to the merits of the controversy, the knowledge possessed by various Board members at the time of their vote on the dismissal recommendation also sheds light on the reasonableness and good faith of their determination, and it does not appear to be unduly burdensome to produce. Moreover, the District Court clearly expressed a preference that document discovery proceed so that the ultimate disposition of this matter not be unduly delayed. Therefore, even though this information is only marginally relevant to the present inquiry, it appears based on FPL's response that there are only limited documents which are not privileged and therefore the request is not burdensome and FPL Is ordered to produce all responsive documents except for those as to which It claims attorney client or work product privilege; any privilege log may Include the use of categories to describe the documents withheld.
The first shareholder demand was apparently made by non-party shareholder Margaret Carlozzl In a letter dated April 12, 2001. At a meeting of the Board of Directors held on May 14, 2001, the evaluation committee was created (DE # 122, Ex. A (Dover Declaration at ¶ 4).
RFP # 9:
All transcripts, notes, or other memorializations of witness interviews conducted by the Special Committee.
There are no transcripts of witness interviews. The Interviews were conducted by counsel for the Committee, with Committee members participating in selected interviews. This dispute concerns the production of the notes of those interviews which were taken by counsel. FPL maintains that these notes are protected by either the attorney client privilege or the work product doctrine. Plaintiff Klein argues that these notes formed the basis for the Committee Report, and therefore are not privileged. The identity of the witnesses interviewed, the law firm which conducted the interview, and the dates of the interviews have been produced (DE # 122, Ex. D Coolidge Declaration at Att. A).
Steel, Hector and Davis LLP, the firm initially retained to assist the Committee, conducted certain interviews before being replaced by Wilmer Cutler.
There are three categories of witness interview notes at issue. Certain witnesses provided information solely about the matters which form the basis for this lawsuit Other witnesses were interviewed with respect to this lawsuit and a separate issue discovered by the Committee during the course of its investigation; that Is, the alleged overpayment of $9 million pursuant to the LTIP disbursements due to an unspecified miscalculation in making the disbursements. A third group of witnesses was interviewed only with respect to the alleged $9 million overpayment (DE # 163 at 38-39).
At the outset, the undersigned finds that to the extent that Plaintiff is seeking discovery with respect to the alleged $9 million overpayment, such information is not relevant to the presently pending Motion to Dismiss. These actions all involved the decision to make the payment-lf Plaintiffs prevail then all payments were improperly made, including the alleged $9 million at Issue In these discovery requests. If Plaintiffs do not prevail, the issue of whether the payments were properly calculated Is not part of this lawsuit. Particularly at this stage of the litigation, where the Court is considering only whether to grant the motion to dismiss, such discovery is beyond the scope of what can reasonably be permitted. This result is not changed by the fact that Defendants use the fact of this recommendation to support the independence and good faith of the Committee members. Thus to the extent that the notes of witness interviews relate to this issue they need not be produced.
With respect to the notes of witness interviews that pertain to the Committee's Report regarding the pursuit of this litigation, under the circumstances of this case, the undersigned finds that the attorney-client privilege and work-product protection has been waived by the manner in which the Report was prepared and communicated, and that, in any event, Plaintiff has made a substantial showing of need for these interview notes. Defendants have strongly resisted any depositions which go to the merits of the underlying dispute, and permitting such depositions would undermine the statutory procedure outlined above. However, to an extensive degree, the Committee delegated both the interview process and the report writing, to counsel. Thus, it insulated itself and the rest of the board from firsthand knowledge of what the witnesses said. Presumably counsel conveyed the substance of these Interviews to the Committee members, and they considered these interviews In adopting the Report. According to the Declaration of Bruce Coolidge, filed In connection with FPL's Motion to Dismiss, "Wilmer Cutler regularly reported significant facts to the Committee as they developed during the course of the inquiry through In-person and telephonic Committee meetings, phone calls with individual Committee members, transmittal of some Interview memoranda and documents to the Committee members, and drafts of the report or portions thereof. Based on their firsthand familiarity with some of the relevant facts, Committee members actively guided aspects of the investigation, including giving direction with respect to particular lines of inquiry and particular witnesses that Committee members wished us to pursue." (DE # 122, Coolidge Declaration at ¶¶ 11-12). Thus, the interview notes are necessary for the Plaintiffs to determine whether the Committee acted in good faith and conducted a reasonable investigation which led to the Report. The fact that the entire voting membership Board of Directors was not apprised of the substance of these interviews is not relevant, since the Committee members who received the results of the interviews were among the Board members who made the decision. Counsel for FPL stated at the hearing that there were approximately 50 interview reports and "about 40 of them simply flowed through into the report, if there was anything relevant to the subject matter of the report. . . . As to 10 of them, they were, in the judgment of counsel and the Committee, sufficiently significant and required that the Committee members have the flavor of the whole thing, then those cases . . . went to the Special Committee in final form" (DE # 163 at 38-39). Moreover, although counsel for FPL argued that the notes should not be provided because counsel was deposed (DE # 163 at 21-22), it became apparent later in the argument that counsel refused to answer questions regarding the substance of the witness interviews (DE # 163 at 64-65).
In sum, it Is well-settled that underlying facts are not protected by the attorney-client privilege, and there has been no argument that the interview notes at issue contain anything other than facts. Moreover, to the extent that the work-product protection has not been waived, the undersigned finds that there Is a substantial need for the Plaintiff to obtain the notes of interviews that pertain to the Report which outweighs any work-product protection, and the substantial equivalent cannot be obtained by other means. Fed.R. CIV. P. 26. In addition, the need to protect the confidentiality of such information is undermined by the public disclosure of the Report, and the fact that this information was intended to be incorporated Into the Report. RFP # 11;
All documents which refer or relate to the Special Committee's decision to replace Steel Hector Davis with new counsel.
Steel Hector Davis was retained by the Committee in June 2001 to assist in the investigation and in the preparation of the Report. According to the Committee Report, the following events occurred regarding the retention of counsel to assist the Committee:
Throughout the summer and fall of 2001, the Committee met by phone and in person to discuss the investigation, and with the assistance of counsel, collected and analyzed documents, interviewed individuals thought to have potentially relevant information, and conducted a search of relevant secondary authorities and other literature concerning executive compensation as well as incentive plans of other public companies.
Approximately eight months into the Investigation the Committee determined that Steel Hector's past and ongoing relationship with FPL and its senior officers, which initially appeared desirable because of Steel Hector's knowledge from many years as FPL's principal law firm, could create an appearance of conflict on issues that arose in the Committee's inquiry. Accordingly, the Committee commenced a search for a law firm with the experience, resources, and independence required to assist in completion of the investigation and in April 2002 retained Wllmer, Cutler Pickering."
(DE #112 at 4).
Plaintiff Klein contends that he is entitled to investigate the reasons why Steel Hector was replaced since this goes to the independence of the Committee's Investigation, and whether It was tainted by the initial involvement of Steel Hector. FPL does not apparently dispute that Plaintiff Klein Is entitled to investigate this; however, FPL has withheld, on attorney client privilege grounds, a March 12, 2002 letter from Steel Hector to the Committee which provides legal advice to the Committee concerning the question of the continued retention of Steel Hector FPL contends that this letter reflects confidential communications between counsel and client, and therefore is properly withheld (DE #118 at 12). Plaintiff Klein has provided no basis for a finding that the privilege has been waived with respect to this advice, other than their apparent position that they are entitled to all legal advice rendered to the Committee.
This letter appears to the undersigned to be privileged information, and it was provided after the litigation had commenced between Plaintiff Klein and FPL; thus their interests were adverse and Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), no longer provides a basis for requiring production. In re: Int'l Sys. Controls Corp. Sec. Litig., 693 F.2d 1235, 1239 (5th Cir. 1982).
Unlike the notes of witness interviews, FPL is not relying on advice provided by Steel Hector, with respect to its continued representation, to support its Motion to Dismiss, or establish its independence. The existence of this advice (as opposed to the decision of the Committee based on the Committee's concerns) is not even mentioned in the report. Although the Court was initially inclined to order the letter produced for in camera review, based on a careful review of the arguments and the report, such review does not appear warranted. Therefore, the request to compel production of this letter is denied.
IV. Plaintiffs Oorbeek's and Barman's Motion to Compel Discovery (DE #119)
The issues presented in this motion are largely addressed by the rulings on Plaintiff Klein's Motion to Compel. Plaintiffs Oorbeek and Berman seeks to compel FPL to "produce all documents reviewed by the Committee or its counsel In this litigation, Including notes of interviews, and all documents that otherwise formed the basis for the conclusions reached by the SLC" (DE # 119 at 2). In its response, and at the hearing, FPL stated that it had produced all historical documents reviewed by the Committee, including historical advice of counsel, under a non-waiver agreement (DE # 163 at 96). FPL objects to producing all internal law firm documents and internal communications among the lawyers at Wilmer Cutler, and objects to producing documents which show legal advice they received from Wilmer Cutler during the course of the investigation (DE # 124, DE # 163 at 95-96).
For the reasons stated above, the interview notes must be produced, as well as any non-privileged documents which were reviewed by members of the Committee or the Board as a whole with respect to the issues addressed by the Report. In addition, with respect to documents received by Committee members from Wilmer Cutler, if a privilege is claimed, a privilege log must be provided. As previously stated, the Committee and FPL did not waive their right to claim attorney client privilege or work product protection merely by filing the Report or seeking dismissal of this action. Wilmer Cutler is not required to provide a privilege log with respect to its internal communications, as no showing has been made that would Justify the production of this work product.
It appeared at the hearing that a privilege log had been provided, although it was unclear whether it was complete (DE # 163 at 62).
V. FPL'S Emergency Motion for an Order of Protection (DE #147)
In this Motion, FPL seeks to quash the subpoenas issued to three senior officers of Entergy-Mr. Leonard (the CEO), Mr. Wilder (the CFO) and Mr. Luft (Chairman of the Board)-on the grounds that these depositions are not relevant to the issues presented in the Motion to Dismiss (DE # 147; DE # 163 at 77). Plaintiffs Oorbeek and Berman (DE # 150) and Klein (DE # 149) have responded in opposition; and the Officer Defendants have replied in support of the motion (DE # 151).
Plaintiff contend that these depositions are relevant to a determination of the reasonableness of the investigation since no Entergy officials were interviewed by the Committee, and yet the report discusses the history of the merger decision and abandonment (DE # 149 at 2, DE # 150 at 2). At the hearing, Plaintiffs pointed to the inclusion in the Report of the statement, "The Committee was satisfied that the issues that led senior management to recommend abandonment of the Entergy merger first came to light in January and February of 2001" (DE # 163 at 73). Plaintiffs state that the significance of this finding lies in the fact that the payments under the LTIP were triggered by the shareholder approval that occurred on December 15, 2000, and that if Mr. Broadhead knew of the reasons for abandonment prior to this vote, it was improper to permit the vote to occur or to fall to disclose this information (DE # 163 at 73-74). In addition, Plaintiffs argue that Committee member Codina participated in the discussions with Entergy that led to the termination of the merger, and that Committee member Dover and counsel Coolidge gave conflicting testimony as to whether the Committee considered the implications of Codina's role on his independence as a Committee member (DE # 150 at 3). Finally, Plaintiffs argue that Entergy has publicly disputed every reason given by FPL concerning why the merger was abandoned (DE # 163 at 74). Plaintiffs claim that Entergy has accused Mr. Broadhead and other executives of manipulating the shareholder vote so that they could obtain the LTIP payments, and then abandoned the merger for "baseless" reasons once they were paid. Plaintiffs want to depose Entergy and Mr. Broadhead to determine "what Mr. Broadhead knew, what he had in his possession, and when he knew it" (DE # 163 at 75).
Although no formal motion was filed with respect to the deposition of Mr. Broadhead, the parties presented their arguments with respect to the propriety of conducting this deposition at the present time in conjunction with their arguments regarding the Entergy depositions.
FPL and the Officer Defendants argue that the decision to terminate the Entergy merger is not relevant to Plaintiff's claims, which involve the adoption, interpretation and implementation of the LTIP provisions. There is no claim set forth that challenges the decision to terminate the merger (DE # 151; DE # 163 at 92-95).
After reviewing the record in this case, and considering all the arguments of the parties, the undersigned concludes that the depositions of the Entergy officials regarding the decision to abandon the merger lie outside the reasonable scope of discovery permitted at this stage of the proceedings. There is no allegation in the Complaint that asserts fraud in connection with the merger decision or abandonment. The nature of the investigation that the Committee undertook with respect to this issue, and the documents reviewed, have been the subject of full discovery. To permit depositions of persons who were not interviewed by the Committee or counsel with respect to matters which lie outside the primary allegations of the Complaint would stray too far from reasonable limitations on discovery envisioned by the statutory dismissal procedure applicable to shareholder's derivative actions.
Therefore, the motion for protective order with respect to these depositions is granted.
VI. Plaintiff Klein's Emergency Motion to Compel FPL to Answer Plaintiff's First and Second Set of Interrogatories (DE * 155)
This motion was filed two days before the hearing, and therefore the defendants' responses were heard orally.
Plaintiff Klein seeks to compel FPL to provide answers to the following question contained in its First Set of Interrogatories:
Page 49 of the Evaluation Committee Report states, "After abandonment of the Entergy merger, several outside directors of FPL were concerned that FPL had made accelerated LTIP payments despite the failure of the merger. These concerns were raised In discussion with FPL officers and J. Hyatt Brown, Chairman of the compensation Committee. Broadhead and other senior officers took the position that the payments were contractually required notwithstanding the abandonment of the merger." Please identify the names of the "outside directors," "FPL officers." and "other senior officers" which are underlined above, and note the category [to which] each name is applicable.
(DE # 155).
In its second set of interrogatories, Plaintiff seeks similar identification information:
1. Please identify the names of the "other companies" referred to i the Report of the Evaluation Committee at page 13, footnote 14: "The FPL formulation is reasonably typical of shareholder approval formulations that other companies have adopted."
2. With respect to the Executive Compensation Advisory Services, Guide to Change of Control referred to in The Report . . . identify all of the companies set forth in Part III of the ECAS Guide which you contend employ language triggering incentive plan payments upon shareholder approval of a merger that is: a) Identical to the language FPL Group used In its 1994 Long Term Incentive Plan; or b) in the words of the Evaluation Committee's Report, "reasonably typical" (p. 13, n. 14) of the language used in FPL Group's 1994 Long Term Incentive Plan. . . .
3. With respect to your answers to number 2 above, which companies include obtaining other approval, in addition to shareholder approval, in order to fulfill the "single" or "first trigger," such as regulatory approval?
FPL objected to answering these interrogatories on the grounds that they seek information relating to the merits of the case, and that it is not relevant to the claims and defenses of the parties.
The undersigned disagrees with the position of FPL, and concurs with the argument of Plaintiffs that the identity of these individuals and other entitles referred to generically is relevant to the reasonableness of the investigation, and the factual basis of its conclusions. It Is true that these answers also relate to the merits of the dispute. However, as FPL itself recognized at the hearing, the Court needs to delve into the underlying merits to some extent in order to evaluate the good faith and reasonableness of the Investigation (DE # 163 at 43). Therefore, FPL shall provide the requested information.
VII. Plaintiff Klein's Emergency Motion to Compel Deposition Testimony (DE # 158)
This motion was filed two days before the hearing, and therefore the defendants' responses were heard orally.
This motion concerns the deposition taken of Armando Codina on January 29, 2003. At that deposition, based upon the instruction given by counsel, Mr. Codina refused to answer questions related to the determination by the Committee that a $9 million overpayment had been made in connection with the LTIP payments made to certain executives. The basis for the objection was lack of relevance.
For the reasons stated above in connection with the motion to compel documents regarding this miscalculation, the undersigned also concludes that the answer to this question should be not compelled.
VII. Plaintiff Klein's Motion to Compel Production of Documents from Defendant Armando Codina (DE ## 172, 173)
In this motion, Plaintiff requests the Court to compel Defendant Codina to produce all documents regarding Codina's involvement, participation, or knowledge in AMR Corporation's (parent of American Airlines) Board of Director's decision to award the airline's top six executives bonuses and pension trusts (DE # 172). Plaintiff argues that these documents are relevant to the issue of Codina's independence as a member of the Committee to Investigate the executive payments made to the FPL executives. Plaintiff contends that these documents are relevant because they "bear on whether Codina ignored key issues in a related executive-compensation controversy at another large public company" (DE # 172 at 6-7). Plaintiff contends that if Codina's membership on other boards of directors, such as American Airlines, can be used to highlight his Independence, they are entitled to examine his actions on executive compensation issues.
Defendant Codina has opposed this Motion (02-20758: DE # 137) on the grounds that it seeks irrelevant information and is an improper attempt to harass him and non-party American Airlines (DE # 137).
There is no allegation of a relationship between FPL and American Airlines, and the issues in the two executive compensation disputes do not appear to be related in any significant manner. The undersigned has considered the principle, as set forth in In re Oracle Corp. Derivative Litig., 2003 Del. LEXIS 55 (Del.Ch. June 13, 2003), filed as supplemental authority (DE # 171) that the independence of directors is measured not just by financial ties, but by other considerations, including psychological or friendship pressures that may bear on the decision to be made by the Committee. However, this request goes too far afield into the business decisions of an unrelated company. Therefore, this motion is denied. In light of this disposition, Defendant Codina's Request for a Hearing is deemed moot.
VII. Conclusion
Based upon a review of the record as a whole, considering the arguments of counsel and the applicable caselaw, and for the reasons stated above and at the hearing, it is hereby
ORDERED AND ADJUDGED that:
1. Plaintiff Klein's Motion to Compel Production of Documents from Nominal Defendant FPL Group, Inc. ("FPL") (DE # 117 filed in Case No. 02-20758-CIV) is GRANTED IN PART, AND DENIED IN PART, as set forth in the body of this Order.
2. Plaintiffs Oorbeek's and Berman's Motion to Compel Discovery (DE # 119) is GRANTED IN PART, AND DENIED IN PART, as set forth in the body of this Order.
3. FPL's Motion to Limit Discovery (DE # 128) is GRANTED IN PART, AND DENIED IN PART, as set forth in the body of this Order.
4. FPL's Emergency Motion for an Order of Protection (DE # 147) is GRANTED.
5. Plaintiff Klein's Emergency Motion to Compel FPL to Answer Plaintiff's First and Second Set of Interrogatories (DE # 155) is GRANTED.
6. Plaintiff Klein's Emergency Motion to Compel Deposition Testimony (DE # 158) is DENIED. In addition, for the reasons stated at the hearing, the Clerk is directed to UNSEAL DE #158.
7. Plaintiff Klein's Motion to Compel Production of Documents from Defendant Armando Codina (DE # 172, 173) is DENIED.
8. Defendant's Motion to Extend Time to File a Response (DE # 175, filed 7/18/03) is GRANTED, nunc pro tunc.
9. Defendant Codina's Request for a Hearing (DE # 184) is DEEMED MOOT.
10. All discovery ordered above shall be produced within ten days from the date of this Order.
DONE AND ORDERED.