Why It's Good to Be King
A deeper dive into the Chancellor's recent decision on Tesla/SpaceX email privilege waiver (or not) in the Twitter v. Musk case.
It's good to be king and have your own way.
Thomas Earl Petty, It's Good to be King, on Wildflowers (Warner Bros. 1994)
The Chancery Daily previously discussed In re Dell Tech [1], which denied a motion to compel production of a corporate director’s emails that were withheld as attorney-client privileged. The court found the director did not waive privilege by using an email account under the control of a former employer.
In the line of decisions implicated by the Dell ruling, which address waiver of privilege through use of email systems under the control of an employer, the analysis turns on an employee’s reasonable expectation of privacy. Those decisions look to a four-factor test articulated in the Southern District of New York in In re Asia Global Crossing [2], to determine whether a party asserting attorney-client privilege had a reasonable expectation of privacy in work email. This is somewhat of a rarity — to have a line of Delaware case law with its roots in a “foreign” precedent.
The Chancellor’s recent decision in Twitter, Inc. v. Elon R. Musk, et al., C.A. No. 2022-0613-KSJM, memo. op. (Del. Ch. Sept. 13, 2022) is the latest Delaware decision on the issue that some now refer to as the “Asia Global” line of cases. (TCD often refers to the same subject matter loosely in internal discussions as “IMS,” after In re Information Management Services, Inc. Derivative Litigation [3] — the first Delaware decision to address the issue.)
It should be noted — given that Asia Global is proverbially non-native (and some might argue even an invasive species) vis à vis Delaware -- that the Southern District of New York, in In re Reserve Fund Securities & Derivative Litigation [4], described the analysis under Asia Global as follows:
Because an employer’s announced policies regarding the confidentiality and handling of email and other electronically stored information on company computers and servers are critically important in determining whether an employee has a reasonable expectation of privacy in such materials, the cases in this area tend to be highly fact-specific and the outcomes are largely determined by the particular policy language adopted by the employer.
That being said, the employee who seeks to assert privilege over email stored on employer computers and servers in the Twitter matter is an individual named Elon Musk, and it is worth noting for the benefit of any subscribers who are unfamiliar with Mr. Musk, that he is — according to The Real-Time Billionaires List, as of the point in real time when these words were rendered in tangible form — the wealthiest living human being on Earth (or elsewhere).
In addition to being the founder and majority owner of The Boring Company, Mr. Musk is the CEO of two other companies: Tesla and SpaceX. By prevailing behavioral standards, Mr. Musk might also be described as “a real character” whose words and deeds are often a magnet for divided public opinion, and in addition to wielding power that is a natural accoutrement to unfathomable wealth, detractors assert that he is a bully, an autocrat, or both.
For this reason, the latest decision in the of-late decision-rich Twitter matter is set against a fraught backdrop for application of Asia Global. Musk, while engaged in his personal campaign to acquire Twitter, communicated with counsel using his Tesla and SpaceX email accounts. Tesla and SpaceX company policies regarding email provide that company accounts may be monitored, that employees should have no expectations of privacy or confidentiality with respect to their company email, and that information maintained on company computer networks is company property.
Prior decisions applying the Asia Global factors have found that the existence of such policies demonstrated the absence of reasonable expectations of privacy, and thereby waiver of privilege. Yet Musk and executives from both Tesla and SpaceX submitted affidavits (unaccompanied by any supporting documentation) representing that employee email will not be monitored unless authorized by Musk or general counsel, that general company email policies do not apply to Musk, and that both companies instead adopted policies applicable only to Musk, which authorized his unrestricted personal use of company email and barred access to his email without his permission.
In her decision, Chancellor McCormick observes:
A cynic might doubt that Musk-specific policies exist at SpaceX and Tesla. Defendants’ factual arguments to that effect rely solely on the affidavits of Musk, who has a lot at stake in this litigation, and three of his direct reports, and none of the affidavits are supported by any corporate records reflecting Musk-specific rules.
TCD agrees with CM’s observation but for the impliedly requisite influence of cynicism, which does not seem necessary for rational doubt. We suspect that the most ingenuous babe in the woods would not hesitate to call “bullfeathers” at rabbits so conspicuously stuffed in a hat. TCD’s view is, of course, entirely irrelevant — what matters is the court’s reasoning, which is essentially that the contrived nature of the evidence doesn’t negate Musk’s actual stature or control as the visionary founder and chief executive of both companies.
The court has little doubt that neither SpaceX nor Tesla view him as on par with other employees, that he has the power to direct operational decisions, and that nobody at either company would access his information without first obtaining his approval. One can debate whether this corporate reality makes for good ‘corporate hygiene,’ but it is difficult to discredit the recitation of the facts.
While this conclusion addresses only the first factor under Asia Global, the remaining factors follow similar reasoning — which, while necessarily tethered to a legal test, ultimately seem to be more a practical assessment. One might surmise that the same outcome would have obtained had Musk simply argued that he’s the richest man in the world and obviously no one at Tesla or SpaceX would dare get into his email. For purposes of attorney client privilege, a “party’s subjective expectation of confidentiality must be objectively reasonable under the circumstances.” Could Musk subjectively expect confidentiality on that basis? TCDthinks yes. Would that expectation be objectively reasonable? TCD would be hard pressed to argue otherwise -- or as CM put it, possibly phrasing the same idea differently, “to this jurist, the evidence rings true.”
TCD is not a particular fan of unmitigated invocation of the attorney-client privilege -- though this is due more to flagrant historical abuse of the privilege in litigation rather than hostility to the privilege in principle. Recalibrating our sense of objectivity, we acknowledge that the Asia Global -- or IMS -- jurisprudence is not without a whiff of unfair surprise. The Twitter ruling seems to leave a lingering question as to the continuing vitality of “company email waiver.” On one hand, CM might have viewed the facts presented as the rare constellation -- not every corporate director or officer is the richest man in the world and CEO of multiple innovative technology companies.
But it is customary in one-off situations for the presiding jurist to drop a note — or as Vice Chancellor Laster recently did in James Rivest v. Hauppauge Digital [5], ten or twelve — to the effect that “this decision only applies to the facts of this case.” CM does not seem to obviously do so here. On the other hand, CM might have provided directors and officers with an all-purpose escape route from perceived unfairness of company email waiver: submit a preferred narrative in a sworn declaration. As noted: “it is difficult to discredit the recitation of the facts.” When the facts are within the sole knowledge of the declarant, particularly so. What TCD feels it can confidently predict is that every case will be this case going forward, and affidavits representing that general policies don’t apply in this case will be as ubiquitous as flagrant over-redactions for alleged confidentiality are today.
Speaking of the latter topic, in TCD’s view it would be most useful to practitioners confronted with a legal standard where “an employer’s announced policies regarding the confidentiality and handling of email and other electronically stored information on company computers and servers are critically important in determining whether an employee has a reasonable expectation of privacy,” to provide “the particular policy language adopted by the employer” that resulted in a given outcome.
Regrettably, in an escalation and exacerbation of levels of dysfunction in existing Chancery practice, the parties to the Twitter matter have created a “public record” that is staggeringly bereft and unedifying. TCD is thus very pleased to report that CM commendably concludes her ruling as follows:
I have reviewed the publicly filed version of Twitter’s motion and Defendants’ opposition concerning Musk’s SpaceX and Tesla email accounts. The redactions were too heavy. I discussed some of the redacted information in this decision. Because the public should have access to information that speaks directly to the merits of the parties’ discovery dispute, I did not omit or redact that information from this decision. None of the information discussed in this decision is truly sensitive or confidential under Court of Chancery Rule 5.1 in any event. The parties are instructed to prepare new public filings, eliminating redactions as to information set forth in this decision.
In re Dell Technologies, Inc. Class V Stockholders Litigation, C.A. No. 2018-0816-VCL (consol.), transcript (Del. Ch. Sept. 17, 2021; filed Sept. 30, 2021)
In re Asia Global Crossing, Ltd., et al., C.A. No. 02-15749-SMB, memo. op. (Bankr. S.D.N.Y. Mar. 21, 2005)
In re Information Management Services, Inc. Derivative Litigation, C.A. No. 8168-VCL (consol.), opinion (Del. Ch. Sep. 5, 2013)
In re Reserve Fund Securities & Derivative Litigation, C.A. No. 09-4346-PGG, memo. op. (S.D.N.Y. May 23, 2011)
James Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG-JTL, memo. op. (Del. Ch. Sept. 1, 2022)