Sokol Holdings v. Dorsey Whitney

Full title: Sokol Holdings, Inc. v. Dorsey Whitney, LLP

Court: Court of Chancery of Delaware

Date published: Aug 5, 2009

C.A. No. 3874-VCS (Del. Ch. Aug. 5, 2009)

Opinion

C.A. No. 3874-VCS.

Date Submitted: July 30, 2009.

Date Decided: August 5, 2009.

Herbert W. Mondros, Esquire, Margolis Edelstein, Wilmington, DE.

Peter J. Walsh, Jr., Esquire, Potter Anderson Corroon, LLP, Wilmington, DE.

LEO E. STRINE, JR., Vice Chancellor

Dear Counsel:

This letter addresses the Motion to Maintain Jurisdiction made by defendant Dorsey Whitney, LLP ("Dorsey") and the three pending discovery motions: 1) the Second Motion to Compel made by Dorsey; 2) the Motion for a Protective Order made by plaintiffs Sokol Holdings, Inc., Frontier Mining, Ltd., Thomas Sinclair, and Brian Savage (collectively, "Sokol"); and 3) the Motion to Compel made by Sokol.

I. Background A. Dorsey's Representation Of Sokol

These motions arise from a lawsuit filed by Sokol in this court concerning the legal fees charged by Dorsey, Sokol's former counsel. Dorsey represented Sokol in connection with an ongoing global litigation in which Michael Wilson Partners ("MWP"), a law firm located in Kazakhstan that has provided legal services to Sokol, contends that some of its former partners used ownership interests in certain Sokol affiliates to hide fees owed to MWP. Sokol is not a party to the MWP litigation, but its records and personnel are subjects of discovery in the litigation. Accordingly, in early 2007 the United States District Court for the District of Colorado, where Sokol's headquarters is located, issued an order for Expedited Judicial Assistance in favor of MWP under 28 U.S.C. § 1782, which provides discovery assistance to foreign tribunals and litigants (the "§ 1782 Order").

Sokol retained Dorsey in January 2007 to respond to subpoenas issued by MWP under the § 1782 Order. This work took place primarily in Dorsey's office in Colorado; none took place in Delaware. Dorsey's scope of representation then expanded to include representing Sokol in actions related to the MWP litigation in various European and Caribbean jurisdictions. As the scope of Dorsey's representation expanded, an attorney in Dorsey's London office, Jean-Pierre Douglas-Henry, was designated the "single point of lawyer contact" for Sokol.¹ As such, it was part of Douglas-Henry's responsibilities to make day-to-day decisions regarding the litigation, and to convince Sokol to pay its Dorsey invoices.² In February 2008, Douglas-Henry left Dorsey and joined the firm of Lawrence Graham LLP. Dorsey remained Sokol's counsel after Douglas-Henry left, but Douglas-Henry remained involved in the matter and worked cooperatively with Dorsey attorneys on ongoing tasks.³

1 See Dorsey Br. in Opp. to Pls.' Mot. for a Protective Order, Ex. A (email of November 26, 2007 from Jean-Pierre Douglas-Henry to Thomas Sinclair).

2 See id.; Dorsey Br. in Opp. To Pls.' Mot. for a Protective Order, Ex. C (email of November 28, 2007 from Jean-Pierre Douglas-Henry to Thomas Sinclair discussing outstanding invoices).

3 See, e.g., Dorsey Br. in Opp. to Pls.' Mot. for a Protective Order, Ex. E (email of April 21, 2008 from Jean-Pierre Douglas-Henry to several Dorsey attorneys providing comments on draft documents related to the MWP litigation).

In late June 2008, a year and a half into its representation and several months after Sokol had stopped paying its legal bills, Dorsey withdrew as Sokol's counsel. Sokol promptly retained the law firm of Marcus Auerbach, LLC as successor counsel and on July 2, 2008 instituted this lawsuit alleging, in essence, that Dorsey overbilled for its work.

B. Sokol's Complaint

In its complaint, Sokol alleges that Dorsey acted with professional negligence and breached its fiduciary duties to Sokol. Both causes of action — negligence and breach of fiduciary duty — are based on the same substantive allegations. Specifically, Sokol contends that 1) Dorsey overbilled for its contract attorneys; 2) Dorsey improperly billed its contract attorneys' services as a legal fee rather than a cost, preventing Sokol from seeking reimbursement for them; 3) Dorsey should have obtained an agreement from MWP to reimburse Sokol's costs related to the subpoenas and failed to do so; and 4) Dorsey incurred unnecessary costs by running ineffective searches for responsive documents. Based on this alleged conduct by Dorsey, Sokol seeks money damages, a declaration that Dorsey's fees are unreasonable, an accounting, and attorneys' fees.

C. The Delay-Filled Course Of Litigation

Although Sokol has maintained that it wishes to reach a prompt and efficient resolution to this dispute, its own tactics have resulted in a tortured path of litigation. For starters, Sokol has opted to drag Dorsey and its witnesses to Delaware, even though the center of gravity in this case rests squarely in Colorado, where most of the legal work in question was performed, where both Sokol and Dorsey conduct a substantial amount of business, and the laws of which appear to govern the merits of this case.⁴ Indeed, if not for Delaware's exceedingly liberal application of the forum non conveniens doctrine, ⁵ Dorsey would have a strong argument that no Delaware court should hear this case given its tenuous connection to this state, the irrelevance of our law, and the inefficiency of proceeding here.

And, after racing to be the first to file a suit regarding the fee dispute and gaining the advantage of choosing the forum, Sokol plodded its way through the litigation and failed to timely meet its obligations. For example, after Dorsey served its first request for document production on August 29, Sokol delayed in providing any response until two weeks after the thirty-day deadline and did not provide a material portion of its document production until mid-November, after Dorsey forced the matter by filing a motion to compel.

In December 2008, after both sides had begun to respond to discovery requests and after the court set a trial date of April 27, 2009, the parties requested and were granted an order referring the case to voluntary mediation under Court of Chancery Rule 174. The mediation was scheduled for May 2009, and the trial date was moved to August 12, 2009. While the parties awaited their mediation date, discovery was ongoing, and in April 2009 Dorsey filed its Second Motion to Compel, which challenged Sokol's invocation of attorney-client privilege regarding certain documents. Rather than respond to the Motion at that time, Sokol requested that the court wait until after the mediation to address the Motion, which the court did, taking into consideration the assurances of counsel that mediation was very likely to be fruitful.

Unfortunately, the mediation did not result in a settlement agreement. The mediation did, however, result in Sokol raising, for the first time, the possibility that the Court of Chancery did not have subject matter jurisdiction to hear Sokol's own complaint. That is, nearly a year into this litigation, and after the parties had spent several months conducting discovery in preparation for a bench trial in Chancery this year, Sokol suggested during the mediation session that the forum it voluntarily chose was not appropriate.

Following the collapse of the settlement talks, Sokol returned to this court to ask for yet more time to prepare for trial. In a letter to the court, Sokol indicated that, in light of the amount of discovery left to be conducted, it believed a late 2009 or early 2010 trial date would more reasonable. In the same letter, Sokol raised its jurisdictional challenge again, albeit half-heartedly, by inquiring "whether the Court intends to consider whether it has subject matter jurisdiction over this dispute," an oblique term paper requirement it dangled in front of me.⁶

6 Letter to the Honorable Leo E Strine, Jr. from Herbert W. Mondros, Esquire dated May 27, 2009 at 2.

Dorsey attempted to resolve the budding controversy over jurisdiction by requesting that Sokol enter a stipulated order with Dorsey requiring the parties to promptly transfer the case to the Superior Court for a bench trial.⁷ In response to this request, Sokol announced, for the first time, that it would seek a jury trial if the case was transferred and contended that its pursuit of a bench trial in Chancery was not a waiver of its jury trial right.⁸ That is, having dragged its feet in discovery and delayed Dorsey's preparation for the anticipated non-jury trial, Sokol reversed its own prior tactical choice and tried to exert leverage by now suggesting that it wanted a jury trial.

7 See Dorsey Op. Br. in Supp. of Def.'s Mot. to Maintain Jurisdiction, Ex. E.

8 See Dorsey Op. Br. in Supp. of Def.'s Mot. to Maintain Jurisdiction, Ex. F.

Faced with this threat of having this action further delayed by a transfer to the Superior Court for a jury trial, Dorsey filed its Motion to Maintain Jurisdiction, which seeks an order retaining jurisdiction in Chancery, or, in the alternative, transferring the case to the Superior Court for a bench trial. This Motion to Maintain Jurisdiction, as well as the deferred Second Motion to Compel and the other discovery disputes, are now before the court.

II. Analysis A. Motion To Maintain Jurisdiction

This unusual Motion involves a defendant, Dorsey, justifying the forum chosen by a plaintiff, Sokol. Although Sokol first raised the jurisdictional issue, it has refused to muster any argument one way or another, instead repeating back in its briefs the court's own statements regarding the court's misgivings about whether equitable jurisdiction lies in a dispute over law firm bills. This refusal to address an issue Sokol itself raised was entirely improper and disrespectful to Sokol's adversaries and the court. Nonetheless, this court is bound to consider its own jurisdiction, and thus I do so now, regardless of Sokol's effective default on the issue.

1. The Court Of Chancery Does Not Have Jurisdiction To Hear Sokol's Complaint

The Court of Chancery is a court of limited jurisdiction and has no power "to determine any matter wherein sufficient remedy may be had by common law, or statute, before any other court or jurisdiction of this State."⁹ Dorsey argues that Count III of Sokol's complaint, alleging that Dorsey breached its fiduciary duties to Sokol, invokes this court's equitable jurisdiction. In making this argument, Dorsey correctly states Delaware law that disputes arising out of a fiduciary relationship are properly the jurisdiction of Chancery.¹⁰ But, the attorney-client relationship is not a fiduciary relationship in the sense that there are special concerns for which there is no adequate remedy at law.

The hallmark of a fiduciary relationship is that one person has the power to exercise control over the property of another as if it were her own.¹¹ Thus, arrangements typically giving rise to fiduciary relationships include trusts, corporations, partnerships, and estates.¹² The reason Chancery has jurisdiction in such cases is because traditionally only the rights of the legal owner are recognized at law, and equity is left to protect the rights of the beneficial owner.¹³

11 See Bond Purchase, L.L.C. v. Patriot Tax Credit Props., L.P., 746 A.2d 842, 864 (Del. Ch. 1999) ("[A] fiduciary is typically one who is entrusted with the power to manage and control the property of another."); Wilmington Leasing, Inc. v. Parrish Leasing Co., 1996 WL 752364, at *14 n. 19 (Del. Ch. Dec. 23, 1996) (same).

12 See WOLFE PITTENGER § 2.03[b][1].

13 See McMahon v. New Castle Assocs., 532 A.2d 601, 604 (Del. Ch. 1987); see also WOLFE PITTENGER § 2.03[b][1].

The attorney-client relationship does not raise the same concerns. Outside of narrow circumstances — such as in the case of client trust accounts or when an attorney is acting in a second capacity like a trustee or corporate manager — none of which are alleged here, attorneys do not exercise control over their clients' property. Rather, attorneys simply hold a position of heightened trust, akin to that of a doctor, which requires the attorney to meet certain professional standards, but does not give rise to fiduciary duties.¹⁴

14 See McMahon, 532 A.2d at 604 ("One may place trust in a workman of any sort and does place trust in one's physician, but it would hardly be contended that such trust would warrant chancery's assuming jurisdiction over a claim that a workman or physician caused injury by want of due care — although a claim of that very type against a trustee will be entertained in a court of equity.").

Admittedly, Delaware courts have, as Dorsey points out, colloquially referred to attorneys as "fiduciaries." But, the cases evaluating attorney conduct in terms of breach of fiduciary duty generally involve an attorney acting in some capacity beyond the mere provision of legal services that raised fiduciary concerns.¹⁵ Dorsey has not cited to, nor can I find, any case in which concepts of fiduciary duty, as opposed to professional negligence, were applied where the dispute was over the simple provision of legal services, as is at issue here.

15 See, e.g., In re Kennedy, 442 A.2d 79 (Del. 1982) (client trust funds); Melson v. Michlin, 223 A.2d 338 (Del. 1966) (attorney took 50% stake in client's company); In re Goldstein, 85 A.2d 361 (Del. 1951) (attorney representing a client in a real estate transaction bought a property of interest to his client in his own name and then resold it to his client for a profit); Vredenburgh v. Jones, 349 A.2d 22 (Del. Ch. 1975) (attorney purchased assets from an estate he represented); Ross Sys. Corp. v. Ross, 1994 WL 89015 (Del. Ch. Feb. 15, 1994) (attorney invested in client's medical implant device and managed company formed to market it). Notably, in Ross the court mentions in passing that the plaintiff had moved to transfer his malpractice claim to the Superior Court, but gives no explanation as to why the court chose to retain jurisdiction in Chancery. Ross, 1994 WL 89015, at *6.

This court has made a similar attempt to cabin the rights and obligations of attorneys in the context of determining when outside counsel is an "agent" for purposes of being entitled to indemnification under § 145 of the DGCL. In Fasciana v. Electronic Data Systems Corp., ¹⁶ this court held that an attorney is an agent for purposes of § 145 only when she acts on behalf of another in dealings with third parties, in accordance with the "more restrictive common law definition" of agent.¹⁷ This approach, the Fasciana court concluded, best served the policy purposes of § 145.¹⁸

16 829 A.2d 160 (Del. Ch. 2003).

17 Id. at 163; see also W. Fiberglass, Inc. v. Kirton, McConkie Bushnell, 789 P.2d 34, 38 (Utah Ct. App. 1990) ("[I]ndemnification statutes are designed to protect persons exercising corporate discretion and authority, not the attorneys those persons hire to give them legal advice." (footnote omitted) (quoted with approval in Fasciana)).

18 Fasciana, 829 A.2d at 169-72.

Likewise, limiting the availability of equitable jurisdiction to circumstances in which an attorney exercises control over the property of a client hews to a more traditional and restrictive definition that better serves Delaware's jurisdictional scheme. By statute, the Court of Chancery cannot hear cases for which there is an adequate remedy at law.¹⁹ Here, the adequacy of the remedies at law for legal malpractice is attested to by the fact that the Delaware Superior Court regularly hears and resolves such disputes.²⁰ Thus, clients with malpractice claims should not be able to bootstrap their way into Chancery simply because the conduct of attorneys can at times and in certain factual circumstances raise fiduciary concerns. Rather, equitable jurisdiction should only be available when an attorney's conduct implicates traditionally and uniquely equitable concerns. That is not the case here, where, as Dorsey's counsel has acknowledged, the dispute is simply about fees and whether one party owes the other a fixed amount of money.²¹

19 10 Del. C. § 342.

20 Since 2007 alone the Delaware Superior Court has heard and issued written opinions in the following legal malpractice cases: Machulski v. Boudart, 2008 WL 836056 (Del. Super. Mar. 28, 2008); N. Del. Aquatic Facilities, Inc. v. Cooch Taylor, 2007 WL 4576347 (Del. Super. Nov. 16, 2007), aff'd, 950 A.2d 659 (Del. 2008); Boerger v. Heiman, 2007 WL 3378667 (Del. Super. Oct. 31, 2007); HealthTrio, Inc. v. Margules, 2007 WL 544156 (Del. Super. Jan. 16, 2007); Keith v. Sioris, 2007 WL 544039 (Del. Super. Jan. 10, 2007); August v. Fifer, 2007 WL 80954 (Del. Super. Jan. 9, 2007).

21 See 12/18/08 Tr. at 3, 5.

Finally, Dorsey's argument that this court has jurisdiction merely because Sokol styled one of its counts as breach of fiduciary duty is unpersuasive. In the oft-quoted words of Chancellor Allen:

Chancery jurisdiction is not conferred by the incantation of magic words. Neither the artful use nor the wholesale invocation of familiar chancery terms in a complaint will itself excuse the court, upon a proper motion, from a realistic assessment of the nature of the wrong alleged and the remedy available in order to determine whether a legal remedy is available and fully adequate. If a realistic evaluation leads to the conclusion that an adequate legal remedy is available this court, in conformity with the command of section 342 of title 10 of the Delaware Code will not accept jurisdiction over the matter.²²

22 McMahon, 532 A.2d at 603.

Here, a realistic assessment of Sokol's claims reveals that they are, at base, claims for professional negligence for which an adequate remedy exists at law. Given this reality, it is critical that this court not exert jurisdiction, despite the unfair burden Sokol has imposed on Dorsey through its meandering litigating tactics. To do so would invite confusion about where legal malpractice claims should be tried in this state. Our Superior Court has long heard such claims, and the loose language of cases referring to lawyers as fiduciaries does not transmogrify legal malpractice or legal billing disputes into an equitable claim for breach of fiduciary duty.

And, the applicable law in this case — likely Colorado — highlights another reason for not creating a new equitable cause of action. This case has no relevant connection to Delaware, and Delaware law has no bearing on it. Opening up Chancery to such a claim could send a signal that this court is a forum for bringing legal malpractice claims unconnected to Delaware against the multitude of law firms that practice or have offices here, even as to claims that have nothing to do with legal work performed in Delaware. Not only would such litigation be burdensome and inefficient, it would entangle the courts of this state in handling matters of attorney responsibility and professionalism better left to the state whose law governs the attorney conduct.

For all of these reasons, this court must decline jurisdiction.

2. This Case Shall Be Transferred To The Superior Court For A Bench Trial

Dorsey has requested that, if the court declines jurisdiction, the case be transferred to the Superior Court under 10 Del. C. § 1902 with an order that the case be heard as a bench trial. Sokol, for its part, does not object to the transfer, but contends that it has not waived its right to a jury trial.

The decision to bring an action in Chancery, however, serves as an effective waiver of the right to a jury trial.²³ Accordingly, this court is generally not solicitous of plaintiffs who file suit in Chancery only to belatedly decide they want to have a jury hear their case.²⁴ Here, Sokol filed suit in this court over a year ago. This was a very deliberate choice given the availability of more convenient forums for Sokol to press its claims, and Sokol's counsel has acknowledged that the decision to come to Chancery was the product of "a lot of discussion" and consideration of Chancery's supposedly unique advantages, including the Rule 174 mediation program.²⁵ The fact that mediation did not turn out as Sokol had hoped does not give Sokol a "do-over" on its non-jury trial calculus. Given that Sokol let nearly a year pass before deciding it wanted to put its case before a jury — during which time the parties made material headway in preparing their cases and during which time Dorsey proceeded on the basis that it was preparing for a non-jury trial — Sokol's request for a jury trial comes too late.²⁶

23 See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 2006 WL 3742596, at *4 (Del. Ch. Dec. 12, 2006) ("These concerns for fundamental fairness are not as pressing when a plaintiff belatedly requests a jury trial over legal causes of action that it long ago knowingly and voluntarily joined with equitable claims. As instigator of the litigation in the Court of Chancery, a plaintiff has options available at the outset of a case to preserve its then rightful expectation of having a jury decide certain factual issues normally triable by a jury at law.").

24 See id. ("Because it chose to proceed entirely without regard to any claimed right to a trial by jury, Wal-Mart has waived its right to request a trial by jury on its remaining legal claim, and its newly professed desire for a jury does not enter the court's calculus in determining whether transfer is justified in this case."); Fontana v. Julian, 1978 WL 4952, at *2 (Del. Ch. July 12, 1978) ("The present case was filed in 1976. No demand for jury trial was ever asserted and it is now too late for plaintiffs to assert such a demand.").

25 6/2/09 Tr. at 12-13.

26 Sokol suggested at one point that this outcome would be different if Sokol amended its complaint to state legal claims that arose after this litigation started. But, that question is now moot because Sokol withdrew its motion to amend, and the argument underlying it is also without logical force.

For these reasons, I find that Sokol has waived its right to a jury trial. In reaching this decision, I reject Sokol's argument that this court lacks the power to order a bench trial. Sokol contends that, because Chancery does not have jurisdiction over any claim in this case, and thus arguably could not have jurisdiction over the claims to be transferred under the clean-up doctrine, it does not have the power to order that the trial conducted in the Superior Court be a bench trial. But, this argument is unsustainable in light of Sokol's own conduct in this litigation. Sokol itself chose to invoke this court's jurisdiction, then created obstruction and delay in Dorsey's efforts to prepare for a non-jury trial, before finally injecting the forum issue late in the proceedings and then effectively failing to weigh in on the question of jurisdiction. These tactics prejudiced Dorsey, and thus this court is required, in the interests of justice and under its inherent power to police the conduct of parties who appear before it, to address such prejudice before it creates further hardship or delay.²⁷ In this instance, that requires ensuring that the case remain in the same non-jury format that the parties have been preparing for, rather than forcing Dorsey to, in essence, litigate a new case. To do otherwise would reward Sokol for its shifting litigation tactics. And, having already acquiesced to be bound by this court's orders by choosing it as the forum for its lawsuit, Sokol is in no position to argue that this court cannot exercise power over Sokol to the extent necessary to prevent injustice.

27 See Gebhart v. Ernest DiSabatino Sons, Inc., 264 A.2d 157, 159 (Del. 1970) ("It is an inherent power of the Trial Court arising from the control necessarily vested in the Court to manage its own affairs and to achieve the orderly and expeditious disposition of its business."); see also Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991) ("[I]t is firmly established that the power to punish for contempts is inherent in all courts." (quotation omitted)); In re Orthopedic "Bone Screw" Prods. Liab. Litig., 132 F.3d 152, 156 (3d Cir. 1997) ("It has long been recognized that courts are vested with certain inherent powers that are not conferred either by Article III or by statute, but rather are necessary to all other functions of courts.").
A number of federal courts have determined that, under this inherent power, a trial court lacking subject matter jurisdiction may still exercise power over the parties with regard to procedural and discovery matters. See, e.g., Bone Screw, 132 F.3d at 156 ("Rule 11 sanctions, which are imposed on persons appearing before the court, may be upheld in the absence of jurisdiction where they are consistent with a court's inherent power to manage its docket and maintain order." (citing Willy v. Coastal Corp., 503 U.S. 131, 138 (1992))); Olcott v. Del. Flood Co., 76 F.3d 1538, 1552-57 (10th Cir. 1996) (upholding sanctions imposed by trial court that lacked subject matter jurisdiction based on the court's inherent power to address collateral issues, like whether a party has abused the judicial process, even when the merits of the case are not before the court); see also 13 CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE PROCEDURE § 3523.2 (3d ed. 2009) ("[A] district court acquires jurisdiction of a case or controversy in its entirety, and, as an incident to the full disposition of the matter, may hear collateral proceedings when necessary to allow it to vindicate its role as a tribunal. . . . This rationale — of a court's vindicating its authority to act as a tribunal — seems to explain decisions such as those upholding a federal court's `inherent' power to impose Rule 11 sanctions even when the underlying claims failed to invoke subject-matter jurisdiction. . . .").

For these same reasons, I also find it an appropriate exercise of this court's jurisdiction to hear and resolve the pending discovery motions. Doing so ensures the parties will be prepared for a prompt trial this year in the Superior Court and that Sokol is not rewarded by its foot-dragging in discovery in a case it initiated as a plaintiff.

B. Dorsey's Second Motion To Compel And Sokol's Motion For A Protective Order

Both of these Motions concern Sokol's invocation of the attorney-client privilege to withhold requested discovery. In its Second Motion to Compel, Dorsey requests an order requiring Sokol to produce approximately thirty-six communications that it has withheld on the basis of attorney-client privilege (for simplicity, the "Withheld Documents"). The majority of the communications are between Sokol and Douglas-Henry — the coordinating attorney at Dorsey who joined another law firm in the middle of the representation — after Douglas-Henry left Dorsey but before Dorsey withdrew from its representation of Sokol.²⁸ In its Motion for a Protective Order, Sokol seeks to shield the timesheets of attorneys at Marcus Auerbach, the firm that succeeded Dorsey as Sokol's counsel (the "Timesheets").

1. The Withheld Documents

Dorsey argues that Sokol waived its attorney-client privilege with regard to Withheld Documents by placing the subject matter of those Documents at issue. Specifically, Dorsey contends that the Withheld Documents are at issue because they involve an attorney who represented Sokol in the underlying litigation concurrently with Dorsey. Sokol responds that, because the Withheld Communications were created after Dorsey's allegedly improper conduct occurred, they are beyond the scope of the at-issue waiver. But, in making this argument, Sokol seeks to narrowly cabin the issues raised in its complaint in a way that is not supported by the plain language of the complaint itself.

Under Delaware law, a party places attorney-client communication at issue, and therefore waives the attorney-client privilege, when "(1) the party injects the communications themselves into the litigation, or (2) the party injects an issue into the litigation, the truthful resolution of which requires an examination of the confidential communications."²⁹ Application of the at-issue exception is guided by considerations of "fairness and discouraging use of the attorney-client privilege as a litigation weapon."³⁰

29 Tenneco Auto. Inc. v. El Paso Corp., 2001 WL 1456487, at *3 (Del. Ch. Nov. 7, 2001) (quoting Hoechst Celanese Corp. v. Nat'l Union Fire Ins. Co., 623 A.2d 1118, 1125 (Del. Super. Ct. 1992)); see also Amirsaleh v. Bd. of Trade of the City of N.Y., Inc., 2008 WL 241616, at *3 (Del. Ch. Jan. 17, 2008); Baxter Int'l, Inc. v. Rhone-Poulenc Rorer, Inc., 2004 WL 2158051, at *3 (Del. Ch. Sept. 17, 2004).

30 Citadel Holding Corp. v. Roven, 603 A.2d 818, 825 (Del. 1992); see also Baxter Int'l, 2004 WL 2158051, at *3.

Here, the Withheld Documents are at issue because resolution of Sokol's claim that Dorsey breached its professional duties requires an examination of Dorsey's full representation, including the portion conducted in cooperation with Douglas-Henry while he was at his new firm. In this regard, Sokol's attempt to distinguish between communications with Douglas-Henry before and after he left Dorsey is nonsensical.³¹ Dorsey continued to represent Sokol for nearly five months after Douglas-Henry left, and Sokol's complaint alleges that Dorsey's total fees are unreasonable, not just those invoiced before Douglas-Henry left. Moreover, Douglas-Henry — who had been central to conducting Dorsey's litigation, and who told Sokol in November 2007 that it had "to be comfortable that [Douglas-Henry] will be making decisions on [Sokol's] behalf . . . [but Sokol] can and should hold [Douglas-Henry] responsible for their consequences!"³² — continued to work with Dorsey attorneys jointly on the Sokol representation after Douglas-Henry left Dorsey.

31 See Sokol Br. in Opp. to Def.'s Second Mot. to Compel at 7 ("Defendants err by invoking [the at-issue exception], with respect to Plaintiffs' private communications with Mr. Douglas-Henry after he had left Dorsey Whitney, after the malpractice occurred, after Plaintiffs' interests and Dorsey's diverged, and which specifically relate to the dispute between Plaintiffs and Dorsey." (emphasis in original)).

32 Dorsey Br. in Opp. to Pls.' Mot. for a Protective Order, Ex. A.

It would be manifestly unfair to Dorsey to allow Sokol to claim that Dorsey acted unreasonably in its representation of Sokol, but then shield the communications of an attorney who played a central role in shaping that representation.³³ This is especially so in this case, where Sokol has indicated in interrogatory answers that it will likely use Douglas-Henry as a fact witness. And, shielding Douglas-Henry's communications serves no policy purpose here, where Sokol should not have expected that its communication with Douglas-Henry would be private from Dorsey given that Douglas-Henry and Dorsey were jointly representing Sokol in the same matter.³⁴ Indeed, the ability of either Douglas-Henry or Dorsey to zealously represent Sokol would require free communication of important information between Sokol's various representatives.

33 See Tackett v. State Farm Fire Cas. Ins. Co., 653 A.2d 254, 259 (Del. 1995) ("The courts of this State have refused to allow a party to make bare, factual allegations, the veracity of which are central to resolution of the parties' dispute, and then assert the attorney-client privilege as a barrier to prevent a full understanding of the facts disclosed.").

34 See Moyer, 602 A.2d at 72 ("In order to be privileged, a communication must be made in confidence of the relationship and under circumstances from which it may reasonably be presumed that it will remain in confidence. . . . [A] statement or communication made by a client to his attorney with the intent and purpose that it be communicated to others is not privileged." (quotation omitted)).

The conclusion that Douglas-Henry's communications with Sokol while Dorsey remained counsel for Sokol accords with the decisions of courts in a number of jurisdictions that were required to determine the scope of attorney-client privilege for communications with a non-party attorney in a legal malpractice suit.³⁵ Those decisions adopted the rule articulated by the Washington Supreme Court in Pappas v. Holloway, ³⁶ which held that, by bringing a malpractice claim against one of the attorneys who represented them in an underlying, complex litigation, the plaintiffs had waived attorney-client privilege as to all of the attorneys who had represented them in the underlying litigation. Using sword and shield language that is familiar to Delaware courts, ³⁷ the Pappas court grounded its decision in the reasoning that a party cannot bring a claim for malpractice "and at the same time conceal from him communications which have a direct bearing on this issue simply because the attorney-client privilege protects them. To do so would in effect enable them to use as a sword the protection which the Legislature awarded them as a shield."³⁸

35 See, e.g., Rutgard v. Haynes, 185 F.R.D. 596 (S.D. Cal. 1999); Bieter Co. v. Blomquist, 156 F.R.D. 173 (D. Minn. 1994); IMO Indus., Inc. v. Anderson Kill Olick, P.C., 746 N.Y.S.2d 572 (N.Y. Sup. Ct. 2002); Pappas v. Holloway, 787 P.2d 30 (Wash. 1990).

36 787 P.2d 30 (Wash. 1990).

37 See, e.g., In re William Lyon Homes S'holder Litig., 2008 WL 3522437, at *4 (Del. Ch. Aug. 8, 2008); Ashmore v. Metrica Corp., 2007 WL 1464541, at *1 (Del. Ch. May 11, 2007); Amirsaleh, 2008 WL 241616, at *3.

38 787 P.2d at 36.

Admittedly, this reasoning is not boundless. As Sokol correctly notes, the holding in Pappas has been limited in several jurisdictions so as to prevent discovery of attorney-client communications that were created after the conduct giving rise to the malpractice claim is over, or for which there is not a substantial need for discovery.³⁹ But, these limitations appear to be applicable to only three of the documents listed on Sokol's privilege log. These three documents were created after Dorsey withdrew from its representation, and therefore are outside the scope of Sokol's complaint. These limitations are not applicable, however, to the remaining Withheld Documents, which were created while Dorsey was still representing Sokol in the underlying litigation and which are necessary for Dorsey to defend its role in the representation, because without the Withheld Documents, Dorsey cannot present the court with a complete picture of how the representation was conducted from February to June 2008.

39 See, e.g., Fischel Kahn, Ltd. v. van Straaten Gallery, Inc., 727 N.E.2d 240, 245 (Ill. 2000); Bieter, 156 F.R.D. at 178.

For these reasons, I find that Sokol has waived its attorney-client privilege with regard to all of the Withheld Documents created before Dorsey withdrew from its representation on June 25, 2008. In reaching this holding, I note that there may be a colorable argument that communications between Sokol and Douglas-Henry not related to the underlying suit — i.e., communications regarding Sokol's strategy in the current fee dispute — may be covered by attorney-client privilege. But, Sokol has waived the right to press such an argument by failing to update its privilege log to provide detailed enough descriptions from which the court could reasonably conclude that the subject of the communication was beyond the scope of what has been placed at issue.⁴⁰

40 See Deutsch v. Cogan, 580 A.2d 100, 107 (Del. Ch. 1990) ("[A] proper claim of privilege requires a specific designation and description of the documents within its scope as well as precise and certain reasons for preserving their confidentiality." (quotation omitted)); Reese v. Klair, 1985 WL 21127, at *5 (Del. Ch. Feb. 20, 1985) ("The documents must be precisely enough described to bring them within the rule or the court has no basis upon which to weigh the application of the privilege."); Hoechst Celanese Corp. v. Nat'l Union Fire Ins. Co., 1995 WL 411805, at *5 (Del. Super. Mar. 17, 1995) ("It has been held that a bare allegation that information and documents are protected from discovery by the attorney-client privilege is insufficient without making more information available." (quotation omitted)).
This court informed Sokol in earlier proceedings that its privilege log — which provides such unelucidating descriptions as "Expenses," "invoice," and "1782" — contained insufficient detail. See 6/2/09 Tr. at 21-22. But, in responding to Dorsey's motion, Sokol elected not to submit an updated privilege to the court, thereby waiving its opportunity to correct the deficiencies in its privilege log.

2. The Timesheets

Sokol's contention that the Timesheets of its successor counsel, Marcus Auerbach, are privileged rests on observations made by this court that "discovery of a lawyer's invoices may implicate the attorney-client privilege."⁴¹ But, it is an overstatement of our law to say that merely because attorney timesheets and invoices may at times implicate the privilege that timesheets and invoices can be blithely withheld in their entirety, as Sokol has done. Rather, Delaware courts have generally held that, although attorney timesheets and invoices may be redacted to the extent they reveal the strategic thought processes of counsel, the basic information of those documents — hours and billing — remains discoverable.⁴² Accordingly, Sokol must produce the requested Timesheets of Marcus Auerbach.

And, because I find that Sokol improperly withheld the Timesheets from discovery, I grant Dorsey's request for fee-shifting under Court of Chancery Rule 37 with regard to Dorsey's costs for opposing the Motion for Protective Order. Dorsey shall submit an affidavit of its reasonable fees and costs in five days.

C. Sokol's Motion To Compel

The final motion before the court is Sokol's Motion to Compel, which seeks an order requiring Dorsey to respond to Sokol's requests for production of documents related to Dorsey's compensation structure and involvement in legal malpractice suits. Sokol specifically seeks complete responses to three of its production requests, some of which Dorsey has already partially responded to: 1) Sokol has requested "all" documents related to Dorsey's firmwide compensation structure from 2005 to now and to the compensation of four individuals who participated in the Sokol representation, including Stephen Bell, who is a partner, two associates, and a paralegal (the "Sokol Attorneys"); 2) Sokol has requested "all" documents relating to the hours billed by the Sokol Attorneys and their corresponding billing rates from 2006 to present, and Dorsey has provided the hours of the Sokol Attorneys but not their corresponding billing rates; and 3) Sokol has requested "all" documents relating to legal malpractice claims brought against Dorsey or Stephen Bell, and Dorsey has confirmed that Stephen Bell has not been previously named as a defendant in a legal malpractice claim but has not produced documents related to malpractice claims against Dorsey.

Sokol argues that the discovery it has requested is relevant because, Sokol believes, it will tend to show that the Sokol Attorneys had an incentive, based on their compensation structure, to overcharge Sokol, and that Dorsey has overcharged other clients in the past as a result of this compensation structure. Dorsey contends that this discovery is irrelevant and designed to delay and harass.

This dispute is governed by Court of Chancery Rule 26, which adopts a liberal standard of relevance: "Parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action. . . ."⁴³ Nevertheless, even where discovery is relevant, this court may narrow its scope "to guard against `fishing expeditions' or to ensure that the discovery sought is properly related to the issues presented in the litigation."⁴⁴ Under Rule 26(b)(1)(iii), the court may, among other reasons, limit discovery that is "unduly burdensome or expensive, taking into account the needs of the case, the amount in controversy, limitations on the parties' resources, and the importance of the issues at stake in the litigation."⁴⁵ Ultimately, the application of this limitation rests in the sound discretion of this court.⁴⁶

43 Ct. Ch. R. 26(b)(1).

44 In re Tyson Food, Inc., 2007 WL 2685011, at *1 (Del. Ch. Sept. 11, 2007); see also Coulter, 2004 WL 1238443, at *1.

45 Ct. Ch. R. 26(b)(1)(iii); see also Ct. Ch. R. 26(c) ("Upon motion by a party . . . and for good cause shown, the Court . . . may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense."). The U.S. Supreme Court has interpreted the federal equivalent to Rule 26(b)(1)(iii) as "vest[ing] the trial judge with broad discretion to tailor discovery narrowly and to dictate the sequence of discovery." Crawford-El v. Britton, 523 U.S. 574, 598 (1998).

46 Dann v. Chrysler Corp., 166 A.2d 431, 432 (Del. Ch. 1960).

Given the generous relevance standard of Rule 26, I cannot conclude out of hand that the compensation outcomes of an attorney's billing decisions or Dorsey's past billing-related lawsuits are completely irrelevant to the claims in this case, which allege that Dorsey overbilled Sokol. This relevance, however, is a tangential one. The core issue in a fee dispute is the objective reasonableness of the fees charged, rather than the subjective motivation of the attorneys involved.⁴⁷ And, discovery into compensation structure is somewhat duplicative of knowledge that is already available to the court, namely that any attorney billing by the hour has some incentive to increase the hours billed. With these general considerations in mind, I turn to Sokol's specific discovery requests.

47 Delaware Rule of Professional Conduct 1.5 lists the factors to be considered when determining whether a fee is reasonable, all of which rest on objective factors:

(1) the time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly;

(2) the likelihood, if apparent to the client, that the acceptance of the particular employment will preclude other employment by the lawyer;

(3) the fee customarily charged in the locality for similar legal services;

(4) the amount involved and the results obtained;

(5) the time limitations imposed by the client or by the circumstances;

(6) the nature and length of the professional relationship with the client;

(7) the experience, reputation, and ability of the lawyer or lawyers performing the services; and

(8) whether the fee is fixed or contingent.

The Colorado Rules of Professional Conduct contain an identical rule. See Col. R. Prof. Con. 1.5.

First, Sokol's request for documents relating to Dorsey's compensation structures is overbroad to the extent it asks Dorsey to produce documents from throughout that several-hundred-attorney firm. With regard to the Sokol Attorneys, their compensation is of only minor relevance to the extent that some of the Sokol Attorneys likely had little control over what was ultimately invoiced to Dorsey. Such minor relevance does not justify invading the privacy of the Sokol Attorneys regarding their compensation.⁴⁸ This balance comes out the other way, however, with regard to individuals who had control over the Dorsey invoice and were ultimately responsible for its reasonableness because the billing incentives of such individuals are more closely related to the invoices Sokol received. Accordingly, the discovery available to Sokol regarding compensation structures is limited to identifying those individuals at Dorsey who exercised control over the Sokol invoices and requesting documents related to their compensation.

48 See Ct. Ch. R. 26(c) (authorizing the court to enter a protective order "to protect a party or person from annoyance [or] embarrassment").

Next, Sokol requests the respective billing rates of the Sokol Attorneys, in addition to the records of the total hours they billed in 2006 through 2008 already produced. Dorsey argues that this discovery is unnecessary because the Sokol Attorneys' billing rates are stated on Sokol's invoices. But, Dorsey has not provided Sokol with the billing rates of the Sokol Attorneys for hours billed to clients other than Sokol. This information is relevant as it tends to show whether the Sokol representation was generally billed at a higher or lower rate than other work performed by the same attorneys, which bears on the reasonableness of the fees. Thus, Sokol may discover the billing rates for all of the hours billed by the Sokol Attorneys from 2006 to 2008.

Finally, Sokol's request for documents relating to all malpractice claims to which Dorsey has been a party is overbroad. This lawsuit implicates only a narrow form of legal malpractice — the charging of excessive fees. As a result, the scope of relevant discovery regarding prior conduct is similarly limited to lawsuits involving fee disputes. And, Sokol's request is overbroad in terms of time period as it specifies no time period limitation. Accordingly, Sokol may discover documents relating to fee disputes brought against Dorsey, but Sokol must limit its request to a reasonable time period from 2004 to the present.

III. Conclusion

For the foregoing reasons, this action shall be transferred to the Superior Court for a bench trial. In addition, Dorsey's Second Motion to Compel is granted except with respect to documents created after Dorsey withdrew from its representation of Sokol, Sokol's Motion for Protective Order is denied, and Sokol's Motion to Compel is denied in part and granted in part. Dorsey shall submit an implementing order in ten days, after notice as to form to Sokol.