Burkhart v. Genworth Fin.

• Decision Date: 01 February 2023
• Docket Number: 2018-0691-NAC
• Parties: RICHARD F. BURKHART, WILLIAM E. KELLY, RICHARD S. LAVERY, THOMAS R. PRATT, and GERALD GREEN, individually and on behalf of all other persons similarly situated, Plaintiffs, v. GENWORTH FINANCIAL, INC., GENWORTH HOLDINGS, INC., GENWORTH NORTH AMERICA CORPORATION, GENWORTH FINANCIAL INTERNATIONAL HOLDINGS, LLC and GENWORTH LIFE INSURANCE COMPANY, Defendants.
• Court: Court of Chancery of Delaware

RICHARD F. BURKHART, WILLIAM E. KELLY, RICHARD S. LAVERY, THOMAS R. PRATT, and GERALD GREEN, individually and on behalf of all other persons similarly situated, Plaintiffs,
v.
GENWORTH FINANCIAL, INC., GENWORTH HOLDINGS, INC., GENWORTH NORTH AMERICA CORPORATION, GENWORTH FINANCIAL INTERNATIONAL HOLDINGS, LLC and GENWORTH LIFE INSURANCE COMPANY, Defendants.

No. 2018-0691-NAC

Court of Chancery of Delaware

February 1, 2023

ORDER GRANTING PLAINTIFFS' MOTION TO COMPEL

Nathan A. Cook, Vice Chancellor

WHEREAS:

1. Plaintiffs are putative creditors of GLIC.^[1] Through this claw-back action, Plaintiffs seek under DUFTA to avoid transactions that Defendants caused GLIC to enter while GLIC allegedly was insolvent. Plaintiffs' claims focus on dividends declared in 2015 and a reinsurance agreement executed in 2016.

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2. The parties have been battling over discovery for several years. Most of their disputes have been resolved by a discovery facilitator and a special master. Their latest dispute concerns two sets of financial documents.

3. The first set of documents targets information surrounding proposals made in 2015-2016 to acquire GLIC during GLIC's unsuccessful sale process (the "Bid Documents"). The Bid Documents consist of:

a. Offering memoranda and packages prepared for bidders

b. Submitted bids, including from the three potential buyers that were identified in GLIC's proxy statement; and

c. Internal communications, and communications between Defendants and sell-side advisors or potential bidders regarding the attempted sale

Dkt. 237 at 6.

4. The second set of documents targets PGAAP materials prepared for a merger involving GLIC and a foreign buyer (the "PGAAP Documents"). Defendants executed a merger agreement with the buyer in 2016, but the merger failed to close. The PGAAP Documents consist of:

a. Final versions and all drafts of a "PGAAP Memo," as well as any PGAAP financial statements and their associated assumptions; and

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b. Communications about the PGAAP Memo and PGAAP financial statements, as well as the buyer's valuation of GLIC, including internal communications, and communications with the buy- or sell-side advisors.

Id. at 9-10 &n.12.

5. Plaintiffs requested the Bid and PGAAP Documents from Defendants at various times throughout this litigation. Defendants have refused to produce them. So Plaintiffs now move to compel (the "Motion"). Defendants oppose the Motion.

6. I heard argument on the Motion on January 19, 2023. The Motion is now ripe for decision.

NOW, THEREFORE, the Court having carefully considered the Motion, and the parties' written and oral arguments, IT IS HEREBY ORDERED, this 1st day of February 2023, as follows:

1. Court of Chancery Rule 26(b) governs the scope of discovery. Under Rule 26(b)(1):

Parties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense and proportional to the needs of the case, including the existence, description, nature, custody, condition and location of any documents, electronically stored information, or tangible things and the identity and location of persons having knowledge of any discoverable matter.

2. "The threshold issue under Rule 26(b) is relevance." In re Cote d'Azur Est. Corp., 2022 WL 17574747, at *8 (Del. Ch. Dec. 12, 2022). "Information sought in discovery is considered relevant if there is any possibility that the information

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sought may be relevant to the subject matter of the action." In re Appraisal of Dole Food Co., 114 A.3d 541, 549 (Del. Ch. 2014) (internal quotation marks omitted). "Under this standard, relevant evidence is discoverable, even if it may not be admissible." Ct. Ch. R. 26(b)(1) cmt.

3. "The scope of discovery [under] Rule 26(b) is broad and far-reaching." Cal. Pub. Emps.' Ret. Sys. v. Coulter, 2004 WL 1238443, at *1 (Del. Ch. May 26, 2004) (cleaned up). Indeed, "the spirit of Rule 26(b) calls for all relevant information, however remote, to be brought out for inspection[.]" Boxer v. Husky Oil Co., 1981 WL 15479, at *2 (Del. Ch. Nov. 9, 1981) (internal quotation marks omitted). As a result, "objections to discovery requests, in general, will not be allowed[.]" Prod. Res. Gp., L.L.C. v. NCT Gp., Inc., 863 A.2d 772, 802 (Del. Ch. 2004) (internal quotation marks omitted). "Discovery is called that for a reason. It is not called 'hide the ball.'" Klig v. Deloitte LLP, 2010 WL 3489735, at *7 (Del. Ch. Sept. 7, 2010).

4. The party seeking discovery initially bears a "slight" burden to "provide some minimal explanation" as to why the information sought is relevant. Dole Food, 114 A.3d at 550-51. If that burden is met, the objecting party must "show why and in what way the information requested is privileged or otherwise improperly requested." Twitter, Inc. v. Musk, 2022 WL 3591142, at *1 (Del. Ch. Aug. 23, 2022) (internal quotation marks omitted). "Generic and formulaic objections are

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insufficient." In re Oxbow Carbon LLC Unitholder Litig., 2017 WL 959396, at *1 (Del. Ch. Mar. 13, 2017) (internal quotation marks omitted). Generalized discovery objections are "tantamount to not making any objection at all." Wood v. U.S. Bank Nat'l Ass'n, 246 A.3d 141, 149 (Del. Ch. 2021) (internal quotation marks omitted).

5. Under DUFTA, "[a] debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets, at a fair valuation." 6 Del. C. § 1302(a). The parties have framed the question of relevancy in terms of DUFTA's concept of a "fair valuation." The parties have used this framing to present, through a discovery motion, merits-based arguments on the proper methodology for determining whether GLIC was "insolvent" in 2015-2016. For their part, Plaintiffs focus on fair value from the perspective of a willing buyer and willing seller. They contend that the question of a debtor's solvency under DUFTA-including that of an insurance company-is governed by fair market value principles. See Dkt. 237 at 3, 6-7, 12. In contrast, Defendants contend that the General Assembly's adoption of statutory accounting principles ("SAP") for purposes of the Delaware Insurance Code effectively preempts the field, rendering fair market value considerations irrelevant. See Dkt. 243 at 6-11; see also 18 Del. C. § 526(a).

6. A discovery motion is an inappropriate vehicle for arguing the merits. See Deloitte LLP v. Flanagan, 2009 WL 2425043, at *1 (Del. Ch. July 10, 2009). A discovery dispute must be resolved "as a discovery dispute," even if "discovery is

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inherently related to the claims upon which the [proposed] discovery is based." Fox v. Paine, 2010 WL 2163148, at *1 (Del. Ch. May 20, 2010). So I have considered the parties' merits arguments for the limited purpose of determining whether the Bid and PGAAP Documents are discoverable. They are.

7. The Bid Documents are relevant under Rule 26(b). The Bid Documents are tailored to negotiations surrounding, and merger terms proposed during, GLIC's 2015-2016 sale process. That process was unsuccessful. From a "common sense" standpoint, it is conceivable that the sale process was unsuccessful, in part, due to issues with the then-present value of GLIC's assets and liabilities. See Boxer, 1981 WL 15479, at *2 ("[T]he requirement of relevancy must be construed liberally and with common sense rather than . . . concepts of narrow legalisms." (internal quotation marks omitted)). So the Bid Documents may reveal information about GLIC's solvency. Accordingly, it cannot be said that the Bid Documents would have "no possible bearing" on Plaintiffs' claims. See Dole Food, 114 A.3d at 548.

8. The PGAAP Documents are relevant under Rule 26(b) too. The PGAAP Documents are tailored to accounting analyses conducted in connection with a failed merger. These assessments may uncover information about GLIC's solvency. Plaintiffs point out, for example, that Defendants commissioned PGAAP materials to ascertain "fair value treatment" of GLIC's "assets and liabilities." Ex. E to Dkt. 237 at 1. Although that inquiry might ultimately have little utility, it does

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track DUFTA's language. And Defendants do not dispute that fair value is the key question in the case; they simply propose their own methodology for deriving it. Accordingly, it cannot be said that the PGAAP documents would have no...