Kearney v. Jandernoa
| Citation | 934 F. Supp. 863 |
| Decision Date | 22 July 1996 |
| Docket Number | No. 1:95-CV-823.,1:95-CV-823. |
| Parties | Keith M. KEARNEY, et al., Plaintiffs, v. Michael J. JANDERNOA, et al., Defendants. |
| Court | U.S. District Court — Western District of Michigan |
John E. Anding, Drew, Cooper & Anding, Grand Rapids, MI, Steven E. Cauley, Little Rock, AR, Milton Clay Ragsdale, M. Clay Ragsdale Law Offices, Birmingham, AL, for plaintiffs.
Ellen S. Carmody, Law, Weathers & Richardson, Grand Rapids, MI, Peter J. Meyer, Gardner, Carton & Douglas, Chicago, IL, for Michael J. Jandernoa, Lonnie L. Smith, Richard G. Hansen, M. James Gunberg, Steven N. Hutchinson, Robert P. Lasner, Mark Olesnavage, F. Folsom Bell, Perrigo Company, William C. Swaney, Ralph E. Klingenmeyer.
Gregory G. Timmer, Rhoades, McKee, Boer, Goodrich, Titta, Grand Rapids, MI, Michael B. Reuben, Gordon, Altman, Butowsky, Weitzen, Shalov & Wein, New York City, for Henry L. Hillman, C.G. Grefenstette.
William K. Holmes, Warner, Norcross & Judd, L.L.P., Grand Rapids, MI, Dennis E. Glazer, Davis, Polk & Wardwell, New York City, for J.P. Morgan Securities, Ltd., J.P. Morgan Securities, Inc., Morgan Stanley & Company, Inc., Morgan Stanley International, Smith Barney Shearson, Inc., Dean Witter Reynolds, Inc., Dean Witter International Ltd.
This is a derivative action against officers and directors of Perrigo Company, a Michigan corporation, and others.
Mr. Peter Formanek was elected to the board of directors of Perrigo on November 11, 1993, and was thereafter elected an "independent director" under Section 505(3) of the Michigan Business Corporation Act, M.C.L. § 450.1505(3). See generally C. Moscow, M. Rogers Lesser, and S. Schulman, Michigan's Independent Director, 46 Bus.Law. 57 (1990) (discussing Section 505(3)). In response to plaintiff shareholders' demand that Perrigo sue its officers and directors, among others, for essentially the same acts or omissions claimed as wrongdoing in a securities fraud action currently pending before this Court,1 the board of directors of Perrigo appointed Mr. Formanek to make an investigation to determine whether it would be in the best interest of Perrigo to bring, on behalf of the corporation, the claims raised by the plaintiffs in the instant case.
To assist in his investigation and report, Mr. Formanek hired Anton R. Valukas and the law firm of Jenner & Block of Chicago, Illinois. On December 15, 1995, Mr. Formanek rendered his report. The Court has read portions of the report and scanned the entire report. The report contains a detailed factual and legal analysis of the securities fraud claims alleged in the securities fraud case currently pending before this Court. The report discusses interviews that Mr. Formanek's counsel had with employees of Perrigo, and it also discusses legal theories which are relevant to the securities fraud action. The report concludes "that it would not be in Perrigo Company's best interest, at this time, to pursue any of the three derivative claims described in the Demand...." (Formanek Report at 198.)
Perrigo did not bring the claims requested by the derivative plaintiffs. As a result, the derivative plaintiffs seek to bring the claims themselves.
Perrigo, as a nominal defendant, has moved to dismiss the derivative claims on the grounds set forth in Section 495 of the Michigan Business Corporation Act, M.C.L. § 450.1495. This provision states, in part, as follows:
(1) The court shall dismiss a derivative proceeding if, on motion by the corporation, the court finds that 1 of the groups specified in subsection (2) has made a determination in good faith after conducting a reasonable investigation upon which its conclusions are based that the maintenance of the derivative proceeding is not in the best interests of the corporation.... If the determination is made pursuant to subsection 2(c) or (d), the plaintiff shall have the burden of proving that the determination was not made in good faith or that the investigation was not reasonable.
Pursuant to Subsection 495(2)(d), a determination can be made "by all disinterested independent directors." M.C.L. § 450.1495(2)(d). Perrigo claims that Mr. Formanek is "all disinterested independent directors."
At a hearing which was held on May 21, 1996, this Court stated that, as a substantive matter in this case, it should resolve the threshold issue of whether Mr. Formanek was a "disinterested independent director" of Perrigo under Michigan law. The Court ordered that the plaintiffs depose Mr. Formanek and Mr. Valukas within 60 days of May 21, but the Court did not limit the deposition to this threshold issue.
The plaintiffs in the instant derivative proceeding have moved to have the December 15, 1995, report of Mr. Formanek produced as part of their discovery. Nominal defendant Perrigo has, in effect, moved for a protective order to prevent the report from being turned over to the plaintiffs. Perrigo argues that the report is protected by the attorney-client privilege because it discusses counsel's interviews with Perrigo employees as well as documentary information received during the investigation and because the report discusses legal standards. Perrigo also claims that the report constitutes the work product of counsel because it was prepared in anticipation of the instant derivative claim.
Mr. Formanek was elected as an allegedly "independent" director. It is arguable that as the only "disinterested independent director" on Perrigo's board, Mr. Formanek can make a determination under Section 495(1) that would require the dismissal of the instant derivative case if his determination was made in "good faith after reasonable investigation." As explained in C. Moscow, M. Lesser and S. Schulman, Michigan's Independent Director, 46 Bus. Law. 57, 58-59:
Perrigo's motion to dismiss pursuant to Section 495(1) raises the following legal and factual issues: whether Mr. Formanek was independent; whether Mr. Formanek was disinterested; whether Mr. Formanek was "all disinterested independent directors;" whether Mr. Formanek made a determination; whether Mr. Formanek acted in good faith; and whether Mr. Formanek conducted a reasonable investigation upon which his conclusions were based. Perrigo argues that there can be adequate discovery and resolution of these issues without permitting the plaintiffs access to the report itself. This Court disagrees. In fact, the report will probably be the best evidence of Mr. Formanek's good faith and the adequacy of his investigation, or lack thereof. Certainly, this Court will want to have the report before it when it rules upon Perrigo's motion to dismiss. Moreover, this Court will not rule on the motion to dismiss in reliance upon the determination contained in the report unless plaintiffs have had the opportunity to read and comment upon the report. Therefore, even if there is work product protection for the report, there is good cause to disclose the report to the derivative plaintiffs during discovery so that the derivative plaintiffs can properly prepare their response to Perrigo's motion to dismiss under Section 495.
As to Perrigo's claim that the report is protected by Perrigo's attorney-client privilege, this Court disagrees. The key point of distinction between the instant case and the cases cited by Perrigo is that Mr. Formanek's report is not simply submitted to Perrigo or an independent committee of Perrigo in order to enable it or them to make a recommendation or decision regarding possible wrongdoing of corporate officers or directors, indemnification, or the defense of an action. Rather, the determination contained in the report is being submitted to the Court under Section 495 as a complete and substantive defense to the derivative claims. This Court holds that...
To continue reading
Request your trial
-
Perrigo Co., In re
...privilege. The district court addressed the issue for the first time in its opinion dated July 22, 1996. See Kearney v. Jandernoa, 934 F.Supp. 863 (W.D.Mich.1996). It held that any attorney-client privilege was waived when Perrigo relied upon the Report in seeking dismissal. However, the co......
- Stone v. West
- Perkins v. Regents of University of Michigan
-
Picard Chemical Inc. Profit Sharing v. Perrigo Co.
...Perrigo's objections that the Report was protected by both attorney-client privilege and work product immunity. See Kearney v. Jandernoa, 934 F.Supp. 863 (W.D.Mich.1996). This Court determined that whether Formanek made an adequate investigation and acted in good faith are questions which a......