Handler v. Centerview Partners Holdings L.P.
| Decision Date | 13 February 2023 |
| Docket Number | 2022-0672-SG |
| Parties | Handler v. Centerview Partners Holdings L.P., |
| Court | Court of Chancery of Delaware |
C Barr Flinn, Esquire Elisabeth S. Bradley, Esquire Hana Brajuskovic, Esquire Young Conaway Stargatt & Taylor LLP 1000 North King Street Wilmington, DE 19801
Dear Counsel:
This letter addresses plaintiff David Handler's Motion to Compel Production of Documents and Information from Defendant Centerview Partners Holdings L.P. (the "Motion"). For the reasons explained below, I recommend that the Motion be granted in part and denied in part. This is a final report pursuant to Court of Chancery Rule 144.
On August 1, 2022, plaintiff David Handler ("Plaintiff," or "Handler"), in his alleged capacity as a partner of Centerview Partners Holdings L.P. ("Defendant," or "Centerview Topco"), initiated this action seeking to compel the inspection of books and records of Centerview Topco pursuant to 6 Del. C. § 17-305.
According to his books and records complaint, Plaintiff joined Centerview in 2008 when he founded Centerview's Tech Team and became a partner of Centerview Topco's wholly owned broker subsidiary, Centerview Partners LLC, and Centerview's advisory business, Centerview Partners Advisory Holdings LLC. Verified Compl. to Compel Inspection of Books and Records ¶ 3, Dkt. No. 1 [hereinafter the "Handler Compl."]. In 2012, Centerview founders Robert Pruzan and Blair Effron "offered Handler a partnership with broader longer-term equity and economics in the overall business to be held through" Centerview Topco, and the parties thereafter operated under an oral partnership agreement. Handler Compl. ¶¶ 4-5. When, in 2021, Pruzan and Effron sought to renegotiate that arrangement, Handler served his demand, seeking to inspect eighteen categories of books and records of Centerview Topco.[1] Id. ¶¶ 7, 29.
On August 29, 2022, Centerview Topco filed its own complaint against Handler in a related action, Centerview Partners Holdings L.P. v. Handler, C. A. No. 2022-0767-SG (the "Substantive Action"), seeking, among other things, a declaratory judgment that Handler "is not and never has been a partner (limited or otherwise) of" Centerview Topco. Centerview Partners Holdings L.P. v. Handler, C. A. No. 2022-0767-SG, Verified Complaint, Dkt. No. 1, "Prayer for Relief" [hereinafter the "Centerview Compl."]. The complaint in that action alleges that between 2012 and 2013, the parties negotiated a draft partnership agreement, but Handler refused to sign it. Id. ¶ 2. A partnership agreement for Centerview Topco (the "L.P. Agreement") was later finalized and executed in November 2013 by Pruzan and Effron, but not Handler. Id. ¶¶ 42, 44-45. According to Centerview Topco's complaint, between 2012 and 2021, "Handler never claimed to be (or acted as if he was) a Topco limited partner," nor did he receive a Schedule K-1 federal tax form reporting income, losses and dividends for Centerview Topco,[2] as Centerview Topco's other partners received in that period. Id. ¶ 6; Def.'s Opp'n to Pl.'s Mot. to Compel ¶ 4, Dkt. No. 66 [hereinafter "Opp'n"].
In the present books and records action, Defendant repeats its arguments that Plaintiff is not a partner of Centerview Topco, and therefore lacks standing to obtain the partnership's books and records. Opp'n ¶ 7.
On November 3, 2022, Vice Chancellor Glasscock held a scheduling conference, at which he determined that the most efficient way to stage the related proceedings was to stay the Substantive Action and bifurcate this summary proceeding in order to first resolve the predicate issue of Plaintiff's partner status in Centerview Topco. Nov. 3, 2022 Scheduling Conference Transcript 8:6-9:18, Dkt. No. 43 [hereinafter "Tr."]. A hearing to resolve Plaintiff's partner status and argument on Defendant's Motion for Judgment on the Pleadings is scheduled for April 5, 2023.
On January 9, 2023, Plaintiff moved to compel the production of various categories of documents responsive to Plaintiff's Request for Production Nos. 1, 2, 3 and 7, as well as responses to Plaintiff's Interrogatory Nos. 1, 2, 3 and 4. Pl.'s Mot. to Compel Production of Documents and Information from Def. 1, Dkt. No. 61 [hereinafter "Mot."].
Court of Chancery Rule 26(b)(1) provides that "[p]arties 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 …." Ct. Ch. R. 26(b)(1). While the scope of discovery under Rule 26 is broad, the Court also "has broad discretion in determining the scope of discovery." Wei v. Zoox, Inc., 268 A.3d 1207, 1212 (Del. Ch. 2022); see also Ct. Ch. R. 26(b).
Compared to plenary proceedings before this Court, the scope of discovery permitted in books and records actions under 6 Del. C. § 17-305 and its corporate analog, 8 Del. C. § 220, is more limited. "Because the issues in a books and records case are narrow, discovery is necessarily narrow as well." Maitland v. Int'l Registries, LLC, 2008 WL 2440521, at *2 (Del. Ch. June 6, 2008). Parties may not use discovery to "expand a books-and-records action into a plenary proceeding …." Lebanon Cnty. Employees' Ret. Fund v. Amerisourcebergen Corp., 2020 WL 132752, at *26 (Del. Ch. Jan. 13, 2020), aff'd, 243 A.3d 417 (Del. 2020).
Although the issues presented in a books and records action typically are narrow, discovery needs nevertheless "may vary with the nature of the defenses that the company interposes." Chammas v. NavLink, Inc., 2015 WL 5121095, at *1 (Del. Ch. Aug. 27, 2015). Here, a predicate issue to determining Plaintiff's entitlement to books and records is whether he is, in fact, a partner of Centerview Topco. While the Court "generally relies on the corporation's existing stock ledger" to summarily resolve stockholder status in a Section 220 proceeding, Knott Partners L.P. v. Telepathy Labs, Inc., 2021 WL 5493092, at *4 (Del. Ch. Nov. 23, 2021), Centerview Topco does not maintain a similar "ledger" of partnership interests.[3] As a result, some factual inquiry into Plaintiff's alleged status as a partner of Centerview Topco is needed; hence Vice Chancellor Glasscock's decision to bifurcate the action and resolve that threshold issue through "some discovery and perhaps an evidentiary hearing." Tr. at 9:9. However, resolution of Plaintiff's broad discovery requests must also take into account the nature of this summary books and records action, for which a hearing is scheduled in less than two months.
The Motion focuses primarily on Plaintiff's Request for Production No. 3, which seeks:
All documents and communications concerning the status of Robert Pruzan, Blair Effron (or any entity in which Pruzan and/or Effron hold a beneficial interest), David Handler, David St. Jean, Mark Robinson, and/or Alan Hartman as an employee, partner, equity holder, or a member of any Centerview entity from 2008 to 2022, including without limitation all accounting records, ledgers, and tax records and filings identifying equity and capital holders and contributors.
Exhibits 1-6 to Pl.'s Mot. to Compel at 22-23 (), Dkt. No. 61 [hereinafter "Mot. Exhibits"]. Specifically, the Motion seeks (1) communications about Plaintiff's status as a partner of Centerview Topco; (2) the L.P. Agreement, including all schedules, attachments and amendments; (3) any documents listing the partners of Centerview Topco; and (4) accounting and tax records for Centerview Topco partners, and related communications.
The Motion seeks to compel the production of communications about Plaintiff's status at Centerview, including communications reflecting the parties' course of conduct demonstrating whether Plaintiff was treated as a partner of Centerview Topco. Mot. ¶¶ 1, 16, 23.
Defendant has not refused to produce communications about Plaintiff's partner status, which is the central issue to be addressed at the April 5 hearing. However, in responding to Plaintiff's request, Defendant unilaterally limited its document review and production to data from four custodians, restricted by undisclosed search terms and a date range of January 2012 (when Plaintiff and Centerview Topco first exchanged a draft partnership agreement) through May 2014 (when Plaintiff purportedly refused to sign it).[4] Opp'n ¶ 13. Plaintiff contends that "[a]ll communications in Defendant's possession concerning Plaintiff's status as partner during the time in which he alleges he was a partner" - from 2008 through the present - "are relevant and should be produced." Mot. ¶ 20 (emphasis added).
Defendant argues that communications addressing Plaintiff's partner status are most likely to fall within the time periods during which the parties negotiated the partnership agreement. That is not unreasonable, but Plaintiff is also correct that documents showing whether Plaintiff was treated as a Centerview Topco partner after those negotiations also may be probative of his partner status. Because the parties have not exchanged search terms, it is difficult to assess the burden associated with either position. Often, parties resolve similar disagreements by negotiating multiple sets of search terms to be applied across different date ranges, using more targeted terms for longer time periods. I believe that approach is appropriate here. Accordingly, within 24 hours, Defendant should disclose to Plaintiff the search terms and date range(s) it has already applied to govern its review, and...
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