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de471871-204e-425e-89f6-f7036fb3c63c | . Yet, even this task would be almost entirely ministerial, since the State Department does not claim that this final step would require a line-by- line or even page-by-page review. Therefore, the Court concludes that, even considering the “substantial weight” owed to the State Department’s declaration on the issue, see 5 U.S.C | National_Security_Counselors_2013-08-15.txt |
7caa7c05-ab53-4bc2-a2d6-cc080ee3683f | . § 552(a)(4)(B), the State Department has not carried its burden of establishing that the records requested by the plaintiff are not “readily reproducible” in an electronic format. Accordingly, the Court will not reach the second issue of whether the State Department has “ma[d]e reasonable efforts to maintain records in forms or formats that are reproducible” in electronic format. See id | National_Security_Counselors_2013-08-15.txt |
74da31bd-29bd-4269-aa92-a2971091bc65 | . § 552(a)(3)(B). The Court thus denies summary judgment to the State Department on Count Nine in No. 11-445 regarding the agency’s decision not to produce responsive records to the plaintiff in an electronic format | National_Security_Counselors_2013-08-15.txt |
4bc8a5ae-5998-4985-b47a-b1b535f7d446 | . The Court will permit the State Department either to submit a further declaration describing in more detail the exact burden involved in reproducing responsive records in an electronic format or to release the records responsive to the plaintiff’s FOIA request in an electronic format. L | National_Security_Counselors_2013-08-15.txt |
282d6040-a4ed-47e5-98f9-1fff5b15e79f | . Segregability Finally, the Court will address whether the defendants have met their burden of demonstrating that “[a]ny reasonably segregable portion of a record [was] provided to [the plaintiff] after deletion of the portions which are exempt under [the FOIA].” 5 U.S.C. § 552(b) | National_Security_Counselors_2013-08-15.txt |
20e7938e-42a5-43ac-b6a2-4a7abe391ca9 | . At various points throughout its briefing, the plaintiff contends that the defendants have failed to satisfy this burden. See, e.g., Pl.’s First 443 Opp’n at 13, 19; Pl.’s First 444 Opp’n at 29; Pl.’s First 445 Opp’n at 9, 23. The CIA, ODNI, DIA, and State Department have averred that all reasonably segregable portions of withheld material have been provided to the plaintiff | National_Security_Counselors_2013-08-15.txt |
3fce0ab1-a498-4cf7-b052-444385076349 | . See 155 First Lutz Decl. ; Third Lutz Decl. ; Hackett Decl. ; First Walter Decl. ; First Williams Decl. . The DOJ and NSA, however, have not provided any similar representations to the Court. The D.C. Circuit has acknowledged that establishing adequate segregation of non-exempt material “presents problems for the agency since . . | National_Security_Counselors_2013-08-15.txt |
fbc28d54-7370-44c9-8af4-fde3d7c1ae2f | . segregability depends entirely on what information is in a document and how it is presented.” Mead Data, 566 F.2d at 261 | National_Security_Counselors_2013-08-15.txt |
dcf1a30f-2742-4d04-89b1-e9488d1a4eb5 | . Therefore, although “agencies should not be forced to provide such a detailed justification that would itself compromise the secret nature of potentially exempt information,” agencies “must be required to provide the reasons behind their conclusions in order that they may be challenged by FOIA plaintiffs and reviewed by the courts.” Id | National_Security_Counselors_2013-08-15.txt |
02d77a34-d981-47a9-9c75-8eca5856502e | . To this end, the Circuit has said that “[i]n addition to a statement of its reasons, an agency should also describe what proportion of the information in a document is non-exempt and how that material is dispersed throughout the document.” Id | National_Security_Counselors_2013-08-15.txt |
56431290-54a7-4508-a318-3beb247682db | . Under Mead Data, if a small proportion of the information is non-exempt, the agency’s explanatory burden is less, and if a larger proportion of the information is non-exempt, “the courts should require a high standard of proof for an agency claim that the burden of separation justifies nondisclosure or that disclosure of the non-exempt material would indirectly reveal the exempt information.” Id | National_Security_Counselors_2013-08-15.txt |
2abb4fac-b97f-4a76-9d26-99da6aa5968f | . On the other hand, however, the Circuit has more recently held that “[a]gencies are entitled to a presumption that they complied with the obligation to disclose reasonably segregable material,” which must be overcome by some “quantum of evidence” by the requester. Sussman v. U.S. Marshals Serv., 494 F.3d 1106, 1117 (D.C. Cir. 2007). Indeed, more recent decisions from the D.C | National_Security_Counselors_2013-08-15.txt |
25ba0f96-a15c-431b-9dea-89636a8d025f | . Circuit have indicated that the standard first articulated in Mead Data has been relaxed. Those decisions have held that an agency may satisfy its segregability 156 obligations by (1) providing a Vaughn index that adequately describes each withheld document and the exemption under which it was withheld; and (2) submitting a declaration attesting that the agency released all segregable material | National_Security_Counselors_2013-08-15.txt |
84a9205b-6b1d-4edd-943f-2fe80e5c1a03 | . See, e.g., Loving, 550 F.3d at 41 (stating that “the description of the document set forth in the Vaughn index and the agency’s declaration that it released all segregable material” is “sufficient for [the segregability] determination”); Johnson v. Exec. Office for U.S. Attorneys, 310 F.3d 771, 776 (D.C. Cir | National_Security_Counselors_2013-08-15.txt |
a1157669-d22a-491d-9f4f-87d78f2c8165 | . 2002) (upholding agency’s segregation efforts based on “comprehensive Vaughn index” and “the affidavits of [agency officials]”). Under the segregability standards more recently articulated by the D.C | National_Security_Counselors_2013-08-15.txt |
9f2ef75a-78f0-4bda-bbd6-13613ec9d385 | . Circuit in Loving and Johnson, the Court first concludes that the DOJ has failed to satisfy its segregability burden because it has failed to submit a declaration attesting that it released all segregable, non-exempt material. This is a basic requirement, and without it the Court cannot conclude that the DOJ has satisfied its segregability obligations | National_Security_Counselors_2013-08-15.txt |
3b03e6a3-bb92-404e-b701-64d958894fdb | . Furthermore, although the CIA, ODNI, and DIA have averred that all reasonably segregable portions of withheld material have been provided to the plaintiff, the Court has also concluded above that all three of these agencies, as well as the DOJ, have deficiencies in their Vaughn indices. See supra Part III.H, III.J | National_Security_Counselors_2013-08-15.txt |
6a3f9bf8-fdc5-45a3-b638-5a63301d46da | . In light of these deficiencies, the Court concludes that the segregability efforts of the CIA, ODNI, DIA, and DOJ do not meet even the more lenient standard articulated in Loving and Johnson. Those cases require, at a minimum, that an agency submit a “comprehensive Vaughn index,” see Johnson, 310 F | National_Security_Counselors_2013-08-15.txt |
7583910f-de8b-417f-b45c-1995d1e2a516 | .3d at 776, which sufficiently describes each document withheld and the reasons for the withholding, see Loving, 550 F.3d at 41. Although the Court does not doubt the sworn statements from the CIA, ODNI, and DIA about their segregability efforts, see First Lutz Decl. ; Third Lutz Decl. ; Hackett Decl. ; First Williams Decl | National_Security_Counselors_2013-08-15.txt |
2e5bac6a-9a02-4dc9-a834-cdb818025882 | . , absent a sufficient 157 Vaughn index, an agency must provide other facts, beyond its good-faith assurances, that would establish that it released all reasonably segregable, non-exempt material. Such information could include, for example, a description of “what proportion of the information in a document is non- exempt and how that material is dispersed throughout the document | National_Security_Counselors_2013-08-15.txt |
5ef99728-da7b-4ef3-a6ba-85ffc145b3a8 | .” See Mead Data, 566 F.2d at 261. Finally, as to the State Department, that agency has sufficiently demonstrated that it has satisfied its segregability obligations with respect to the one responsive document that it has thus far withheld, in whole or in part, which is disputed in this case | National_Security_Counselors_2013-08-15.txt |
8b372200-2a5a-40c5-9ba0-9326629f8af6 | . As to that document, the State Department has provided a detailed description, averring that it is a 91-page “guide to the procedures used for processing information access requests received by the [State] Department.” First Walter Decl. | National_Security_Counselors_2013-08-15.txt |
97dca8f5-fec8-4a00-b676-ba7f21b3832c | . The only portion of the document that the State Department withheld was “a three-line footnote describing an exception to the guidelines for handling material referred by the [State] Department to another government agency.” Id. | National_Security_Counselors_2013-08-15.txt |
0165b4a8-2777-48b6-a601-28aa47000bb2 | . The Court is satisfied from this detailed description, in tandem with the State Department’s good-faith assurance that “[t]here is no additional meaningful non-exempt material that may be segregated and released,” id., that the State Department has satisfied its segregability obligations under the FOIA. See Loving, 550 F.3d at 41; Johnson, 310 F.3d at 776.79 IV | National_Security_Counselors_2013-08-15.txt |
54306055-93bc-4654-9b59-6d4043ba575a | . CONCLUSION For the reasons discussed above, in summary, the Court rules on the defendants’ motions for summary judgment, the plaintiff’s cross-motions for summary judgment, the plaintiff’s 79 The Court need not assess the segregability efforts of the NSA because the plaintiff does not challenge any withholding decisions made by the NSA, and thus the Court need not review any such withholding | National_Security_Counselors_2013-08-15.txt |
ed817c35-1232-4eb8-83d3-8bb24ab4fe9b | decisions | National_Security_Counselors_2013-08-15.txt |
65b65699-9152-4317-876a-5ba62cf63936 | . See, e.g., Sussman, 494 F.3d at 1116 (holding that “the district court must make specific findings of segregability regarding the documents to be withheld” only “[b]efore approving the application of a FOIA exemption”). 158 motion for leave to file an amended complaint, and the plaintiff’s motion for sanctions as follows: Civil Action No | National_Security_Counselors_2013-08-15.txt |
bced9bc2-1ed0-4f8b-9248-1eb2acdd3b1a | . 11-443 • The Court grants summary judgment to the plaintiff on Count One in No. 11-443. See supra Part III.C.1. • The Court grants summary judgment to the plaintiff on Count Two in No. 11-443. See supra Part III.C.1. • The Court grants in part and denies in part summary judgment to the CIA on Count Three in No. 11-443 | National_Security_Counselors_2013-08-15.txt |
b7425321-0909-479f-ad28-e84bd3d5ceb9 | . The Court denies summary judgment to the CIA on Count Three with respect to (1) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H.1; (2) the CIA’s refusal to produce responsive records in an electronic format, see supra Part III.K | National_Security_Counselors_2013-08-15.txt |
4ac8cd08-b52b-4e63-8418-3eb53346dd21 | .1; and (3) the CIA’s withholding of the “two-page classified TOC from volume 53 (number 2)” of Studies in Intelligence, see Fourth Lutz Decl. , pursuant to Exemption 1, see supra Part III.F.2. The Court grants summary judgment to the CIA on Count Three in all other respects. • The Court denies the plaintiff’s Motion for Sanctions, No. 11-443, ECF No. 50. See supra Part III.B. Civil Action No | National_Security_Counselors_2013-08-15.txt |
52b8eba9-de85-4756-aabe-bad9a0833b4c | . 11-444 • The Court grants summary judgment to the CIA on Count One in No. 11-444. See supra Part III.E.3. • The Court grants summary judgment to the CIA on Count Eight in No. 11-444. See supra Part III.E.2. 159 • The Court grants summary judgment to the CIA on Count Nine in No. 11-444. See supra Part III.E.1. • The Court grants summary judgment to the CIA on Count Ten in No. 11-444 | National_Security_Counselors_2013-08-15.txt |
c3f6f04f-7b88-41d3-9d7a-a88331d542be | . See supra Part III.E.4. • The Court denies summary judgment to the CIA on Count Seventeen in No. 11-444. The Court denies summary judgment to the CIA on Count Seventeen with respect to (1) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H | National_Security_Counselors_2013-08-15.txt |
813f26f1-4035-4f56-a94b-13fa5deabe7b | .1; (2) the CIA’s withholding of responsive information under FOIA Exemption 5, see supra Part III.J.1(a), III.J.2(a); and (3) the CIA’s refusal to produce responsive records in an electronic format, see supra Part III.K.1. • The Court denies summary judgment to the CIA on Count Eighteen in No. 11-444 | National_Security_Counselors_2013-08-15.txt |
2c1d4def-ac1e-45a4-b039-b4cb172ef69f | . The Court denies summary judgment to the CIA on Count Eighteen with respect to (1) the adequacy of its search efforts, see supra Part III.D.1; (2) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H.1; (3) the CIA’s withholding of responsive information as “non responsive,” see id | National_Security_Counselors_2013-08-15.txt |
b119c702-3471-4da4-9111-63dab843781e | .; and (4) the CIA’s refusal to produce responsive records in an electronic format, see supra Part III.K.1. • The Court grants in part and denies in part summary judgment to the CIA on Count Twenty in No. 11-444. The Court denies summary judgment to the CIA on Count Twenty regarding the adequacy of its search efforts, see supra Part III.D | National_Security_Counselors_2013-08-15.txt |
89493422-dd13-400d-ac64-a3c3f4be354a | .2, and grants summary judgment to the CIA on Count Twenty in all other respects. 160 • The Court grants summary judgment to the CIA on Count Twenty-One in No. 11-444. See supra note 5. Civil Action No. 11-445 • The Court grants in part and denies in part summary judgment to the CIA on Count One in No. 11-445 | National_Security_Counselors_2013-08-15.txt |
9fff0a3a-adbc-4b8c-8814-25f7182f198f | . The Court denies summary judgment to the CIA with respect to (1) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H.1; (2) the CIA’s withholding of responsive information under FOIA Exemption 5, see supra Parts III.J.1(a), III.J | National_Security_Counselors_2013-08-15.txt |
0bba6b7f-2830-461c-909d-016e8c2aa9c6 | .2(a); and (3) the CIA’s withholding of document C05366473 pursuant to Exemption 1, see supra Part III.F.1. The Court grants summary judgment to the CIA in all other respects. • The Court grants in part and denies in part summary judgment to the CIA on Count Two in No. 11-445 | National_Security_Counselors_2013-08-15.txt |
99887f8c-e839-471b-913d-059eefa8e471 | . The Court denies summary judgment to the CIA with respect to (1) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H.1; (2) the CIA’s withholding of responsive information under FOIA Exemption 5, see supra Parts III.J.1(a), III.J | National_Security_Counselors_2013-08-15.txt |
180e89b3-5855-4332-9e47-0116f7a35fee | .2(a); and (3) the CIA’s withholding of eight documents pursuant to Exemption 1: C01499710, C05403192, C05403194, C05403197, C05403198, C05403199, C05403203, and C05549838, see supra Part III.F.1. The Court grants summary judgment to the CIA in all other respects. • The Court grants in part and denies in part summary judgment to the CIA on Count Three in No. 11-445 | National_Security_Counselors_2013-08-15.txt |
a81c9464-4b58-42a7-82fc-1871527fb595 | . The Court denies summary judgment to the CIA with respect to (1) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H.; and (2) the CIA’s withholding of responsive 161 information under FOIA Exemption 5, see supra Parts III.J.1(a), III.J.2(a). The Court grants summary judgment to the CIA in all other respects | National_Security_Counselors_2013-08-15.txt |
e0d23611-1ef6-452e-aac9-878c78402e10 | . • The Court grants in part and denies in part summary judgment to the DIA on Count Five in No. 11-445. The Court denies summary judgment to the DIA with respect to the DIA’s withholding of responsive information under FOIA Exemption 5, see supra Parts III.J.1(b), III.J.2(b), and the Court grants summary judgment to the DIA in all other respects | National_Security_Counselors_2013-08-15.txt |
1dad412a-9fb3-4aff-b84b-1360d8c3140d | . • The Court denies summary judgment to the ODNI on Count Six in No. 11-445. See supra Parts III.H.3, III.J.1(b), III.J.2(b). • The Court grants in part and denies in part summary judgment to the CIA on Count Seven in No. 11-445 | National_Security_Counselors_2013-08-15.txt |
4bd336f5-7787-492f-bfec-6206bafcbca9 | . The Court denies summary judgment with respect to (1) the CIA’s withholding of thirteen documents pursuant to FOIA Exemption 2: C05520233, C05520227, C05520231, C05520236, C05520235, C05520226, C05520181, C05520232, C05520213, C05520218, C05520223, C05520228, and C05520234, see supra Part III.G; (2) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C | National_Security_Counselors_2013-08-15.txt |
9779d3e9-ee5d-4d4b-9544-7ae25e504c80 | . § 403g, see supra Part III.H.1; and (3) the CIA’s withholding of responsive information under FOIA Exemption 5, see supra Parts III.J.1(a), III.J.2(a). The Court grants summary judgment to the CIA in all other respects. • The Court grants in part and denies in part summary judgment to the DOJ on Count Eight in No. 11-445 | National_Security_Counselors_2013-08-15.txt |
6c5bbb4d-19ae-4c98-bb69-817ded77d2e0 | . The Court denies summary judgment to the DOJ with respect to the portions of Documents 3 and 13 that were publicly disclosed in the documents submitted by the plaintiff. See supra Part III.J.2(c). The Court finds the plaintiff’s challenge to the 162 DOJ’s withholding of Document 11 to be moot. Id. The Court grants summary judgment to the DOJ in all other respects | National_Security_Counselors_2013-08-15.txt |
b5c2886b-e006-4459-894d-6759aecb4ccb | . • The Court grants in part and denies in part summary judgment to the State Department in Count Nine in No. 11-445. The Court denies summary judgment to the State Department with respect to (1) the adequacy of its search efforts, see supra Part III.D.3; and (2) the State Department’s refusal to produce responsive records in an electronic format, see supra Part III.K.2 | National_Security_Counselors_2013-08-15.txt |
1b3ee26e-7b30-4356-8aad-10911c1c9dc1 | . The Court grants summary judgment to the DOJ in all other respects. • The Court denies summary judgment to the NSA on Count Ten in No. 11-445. See supra Part III.D.4. • The Court grants summary judgment to the CIA on Count Twelve in No. 11-445. See supra note 3. • The Court denies summary judgment to the CIA on Count Thirteen in No. 11-445 | National_Security_Counselors_2013-08-15.txt |
320fcc72-fa48-4ca7-afe7-edb77442ff62 | . The Court denies summary judgment to the CIA on Count Thirteen with respect to (1) the CIA’s withholding of responsive information under FOIA Exemption 3 and the CIA Act, 50 U.S.C. § 403g, see supra Part III.H.1; (2) the CIA’s withholding of responsive information under FOIA Exemption 5, see supra Part III.J.1(a), III.J.2(a) | National_Security_Counselors_2013-08-15.txt |
5748c889-39f6-4377-a576-861c07c5c3eb | . • The Court grants summary judgment to the plaintiff on Count Twenty in No. 11-445. See supra Part III.C.2 | National_Security_Counselors_2013-08-15.txt |
f1223d35-4192-48d5-b6c7-53955a1ce873 | . The Court directs the parties to jointly file, within twenty days of this decision, the following: (1) a status report that sets forth a list of the records that remain in dispute, in light of the Memorandum Opinion accompanying this Order, and that identifies each such disputed record by a Bates number, or other unique identifier, and by citation to the particular page(s) of the Vaughn index | National_Security_Counselors_2013-08-15.txt |
7b4970c0-488f-4dba-827e-aff4225cec82 | where the disputed record is described; and (2) a proposed briefing schedule 163 for any further proceedings in this matter, including deadlines for the submission of any renewed dispositive motions, supplementary Vaughn indices, or supplementary declarations | National_Security_Counselors_2013-08-15.txt |
b160de6d-128e-4b26-8067-100f46e4b3de | . An appropriate Order accompanies this Memorandum Opinion. Date: August 15, 2013 /s/ Beryl A. Howell BERYL A. HOWELL United States District Judge | National_Security_Counselors_2013-08-15.txt |
21f283a4-620c-466a-9eb2-f02c1d97f342 | COURT OF CHANCERY OF THE STATE OF DELAWARE PATRICIA W. GRIFFIN MASTER IN CHANCERY CHANCERY COURTHOUSE 34 The Circle GEORGETOWN, DELAWARE 19947 Final Report: July 30, 2019 Date Submitted: June 11, 2019 Daniel A. O’Brien, Esquire Jamie L. Edmonson, Esquire Venable, LLP 1201 North Market Street, Suite 1400 Wilmington, DE 19801 Kenneth J | Senetas_Corporation,_Ltd_2019-07-30.txt |
db6fec5f-aa36-4237-b1ac-845bd15b47ee | . Nachbar, Esquire Morris Nichols Arsht & Tunnell, LLP 1201 North Market Street PO Box 1347 Wilmington, DE 19899 RE: Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
6c65d98f-22d7-48f9-9a8b-d3e0d4dabe88 | . 2019-0170-PWG Dear Counsel: This case involves a demand to inspect the books and records of a closely held company that develops artificial intelligence systems for medical visual recognition tasks, specifically diagnostic radiology tasks | Senetas_Corporation,_Ltd_2019-07-30.txt |
aeebfb9c-b9a8-4369-9e61-904e4628d82d | . The plaintiff, a major investor in the company, seeks to inspect the company’s books and records in order to investigate potential corporate mismanagement and wrongdoing. The defendant alleges the plaintiff is not entitled to inspection because it has not shown Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
458e8ed2-c77d-405a-bde5-cd8ecc51688c | . 2019-0170-PWG July 30, 2019 2 a credible basis to infer wrongdoing or mismanagement, is a competitor with an ulterior motive for the inspection, and the scope of the demand is overbroad | Senetas_Corporation,_Ltd_2019-07-30.txt |
3438e0d0-316a-462e-8600-6ac0d62b05fd | . I conclude the plaintiff has established a credible basis from which a court can infer that mismanagement or wrongdoing may have occurred, and the defendant has not shown that the plaintiff has an ulterior motive negating its proper purpose. I condition inspection on the parties entering into a confidentiality agreement | Senetas_Corporation,_Ltd_2019-07-30.txt |
354f26ce-80cb-4e19-acd7-8e9be6a30234 | . With regard to the scope of the inspection, the parties shall confer and submit to the Court their considerations on specific documents or categories of books and records that are necessary, sufficient and essential for the plaintiff’s proper purpose, prior to the Court making further determinations. This is a final report. I. Background A | Senetas_Corporation,_Ltd_2019-07-30.txt |
eab74192-db0c-40b2-a4d4-066f34dc3969 | . Factual Background1 Plaintiff Senetas Corporation Limited (“Senetas”) is a publicly listed Australian network encryption company.2 Senetas’ non-executive chairperson is Francis W. Galbally.3 Defendant DeepRadiology (“DR”) is a Delaware corporation involved in developing artificial intelligence systems for medical 1 I refer to deposition transcripts as “Dep. Tr | Senetas_Corporation,_Ltd_2019-07-30.txt |
a18c7d13-8d1a-4797-923a-a803321f338a | .,” the trial transcript as “Trial Tr.,” and the parties’ joint exhibits submitted at trial as “JX.” 2 Galbally Dep. Tr. 12:12-13; 13:21-24. 3 Docket Item (“D.I.”) 46, at 1. Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No. 2019-0170-PWG July 30, 2019 3 visual recognition tasks.4 Kim Nguyen and Robert Lufkin founded DR on July 8, 2015 | Senetas_Corporation,_Ltd_2019-07-30.txt |
96729723-fa94-4608-bcee-001fc44cb618 | .5 Nguyen is DR’s President, Secretary and Treasurer.6 In May of 2017, Senetas invested approximately $1 million of seed capital in exchange for 397,219 shares of DR’s Series Seed-1 Preferred Stock, becoming a major investor/shareholder | Senetas_Corporation,_Ltd_2019-07-30.txt |
c949d183-1fea-407c-8210-6a24d0234dc4 | .7 Senetas invested in DR because DR “had a leading medical application for artificial intelligence and machine learning, and had assembled a team of the most expert people around the world that were assisting in developing the application | Senetas_Corporation,_Ltd_2019-07-30.txt |
393f9e86-a01b-4cf8-9025-a0dd14faa57c | .”8 Senetas understood that, at the time it invested, the first iteration of DR’s technology was awaiting FDA approval, and that approval was a key factor in Senetas’ decision to invest in DR.9 Senetas also expected that DR would pursue additional rounds of capital investment, thereby positioning DR as an acquisition target for other companies in the industry.10 4 D.I. 9, at 2. 5 Id.; Nguyen Dep | Senetas_Corporation,_Ltd_2019-07-30.txt |
15b2b37e-8f18-42c8-aee5-251ee35c288a | . Tr. 7:12-14. 6 Nguyen Dep. Tr. 7:18-23. 7 D.I. 46, at 4-5. 8 Galbally Dep. Tr. 18:6-14. Senetas believed DR’s “technology will revolutionise [sic] the medical radiology industry by significantly reducing the error rate, cost and time to interpret medical images.” JX 175. 9 Galbally Dep. Tr | Senetas_Corporation,_Ltd_2019-07-30.txt |
53c3f321-457b-49cb-a3c6-1437c3e76619 | . 56:20-22; 58:2-10 (“FDA approval to me was one of the most important aspects as to why I invested, and the fact that it was likely to be approved at some stage during 2017”); 98:7-9. 10 Galbally Dep. Tr. 20:11-24. Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
7f785f30-86fb-4323-b4b4-0869d3e982ac | . 2019-0170-PWG July 30, 2019 4 Galbally was appointed to DR’s Board of Directors (“Board”) as Senetas’ designee, and served on the Board with Nguyen, Lufkin, and Robert Rankin, the designee of another investor.11 The evidence shows that the Board held a meeting in August of 2017 during which no minutes were taken.12 No further board meetings were held during Galbally’s tenure on the board | Senetas_Corporation,_Ltd_2019-07-30.txt |
94d6c85d-ddb3-4319-9210-97d73f738833 | .13 In January of 2018, in an attempt to obtain additional funding and without Board knowledge or approval, DR completed the preliminary steps of an Initial Coin Offering (“ICO”).14 Galbally attempted to schedule a special meeting of the Board to discuss the ICO as well as the company’s overall financial needs and financing options | Senetas_Corporation,_Ltd_2019-07-30.txt |
464f1651-8c36-400d-a276-d461c7b8dd71 | .15 This special Board meeting was held on February 23, 2018 with Galbally as the only member in attendance.16 DR subsequently pulled the ICO offering from its website and never finalized the offering.17 In a letter dated 11 Galbally Dep. Tr. 335:11-15 | Senetas_Corporation,_Ltd_2019-07-30.txt |
e5999c61-6279-4650-822d-4c773dfdb0e3 | . The Amended and Restated Investors’ Rights Agreement provides that Board composition will be five persons, with one vacant seat on the Board at the time the Agreement was executed. JX 30, .3. 12 Galbally Dep. Tr. 336:2-4; 337:2-6. 13 Galbally Dep. Tr. 335:22-336:1; 337:7-22. 14 Nguyen Dep. Tr. 162:7-16. 15 Galbally Dep. Tr. 348:17-22 | Senetas_Corporation,_Ltd_2019-07-30.txt |
f543957a-ba78-4e14-9fcf-224a5feb1c6c | . Galbally testified that he had “grave concerns” about the ICO offering. Galbally Dep. Tr. 156:21-23. 16 Galbally Dep. Tr. 319:24-320:7; 320:20-23; 349:8-17; JX 89. 17 See JX 88. Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
2784629f-123a-408b-9854-32f31fd11a6b | . 2019-0170-PWG July 30, 2019 5 February 26, 2018, Galbally resigned from the Board and, shortly thereafter, unsuccessfully attempted to inspect DR’s books and records at DR’s offices.18 The evidence shows that DR depleted all of its seed capital by February of 2018.19 Since that time Nguyen and Lufkin have been funding the Company personally | Senetas_Corporation,_Ltd_2019-07-30.txt |
2cc3ef45-3400-4d1f-b20c-4d34d7fdb86f | .20 In August of 2018, Senetas wrote the DR investment off its books.21 In September of 2018, Nguyen told Galbally and other investors that DR was going to stop seeking FDA approval and would deploy its technology in a manner that would not require FDA approval.22 At that same meeting, she also promised access to DR’s books and records | Senetas_Corporation,_Ltd_2019-07-30.txt |
c4b6aa1a-45bd-48b8-a5e3-468998e831cd | .23 Later in September, Jack Dwyer (“Dwyer”), a representative of another investor, inspected DR’s books and records covering operations from December of 2016 through February of 2018, and requested additional information that DR has not provided.24 B. Procedural Background 18 JX 122; Galbally Dep. Tr. 351:13-22. 19 JX 88. 20 Nguyen Dep. Tr. 34:13-35:4. 21 Galbally Dep. Tr. 52:23-53:21; JX 38 | Senetas_Corporation,_Ltd_2019-07-30.txt |
df3d3ff4-25ab-4ce5-b918-292c8a19884a | . 22 Galbally Dep. Tr. 362:3-363:14; Trial Tr. 21:21-22:3. 23 Galbally Dep. Tr. 364:12-17. 24 See n. 49 infra. Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No. 2019-0170-PWG July 30, 2019 6 On February 12, 2019, Senetas sent a written demand (“Demand”) dated February 6, to inspect DR’s books and records.25 The letter demanded the right under 8 Del. C | Senetas_Corporation,_Ltd_2019-07-30.txt |
996344be-01a8-485e-96b5-dd3e4e9caf8e | . § 220 of the Delaware General Corporation Law (“Section 220”) to inspect nine categories of books and records. DR failed to respond to the Demand within the mandated five days | Senetas_Corporation,_Ltd_2019-07-30.txt |
d54cb600-bc9f-415f-80d5-926126e5b67c | . On February 28, 2019, Senetas filed a complaint in which they argue that, under Section 220, it has a proper purpose to inspect DR’s stocklist and books and records because the information requested “bears on questions about the true value of the Company’s assets, and whether its assets and opportunities are being managed and pursued in a way that maximizes shareholder value | Senetas_Corporation,_Ltd_2019-07-30.txt |
c029361c-7c34-4890-8280-fcc1b54b21a4 | .”26 On April 1, 2019, DR filed an answer, in which it asserts Senetas “lacks a proper purpose . . . and, further, has an improper purpose and/or improperly seeks to use . . . the requested documents to the detriment of the Company | Senetas_Corporation,_Ltd_2019-07-30.txt |
02074f37-e8f1-4806-8e5e-024d76a765e3 | .”27 And, DR claims the Demand fails “to establish a credible basis from which to infer any actual or possible mismanagement or wrongdoing”; its scope is overbroad; access to sufficient information has already been provided; and confidential and 25 D.I. 1, Ex. 2. 26 Id. at 7. 27 D.I. 9, at 10. Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
56450799-ce47-4cd9-8633-f570905a5bc9 | . 2019-0170-PWG July 30, 2019 7 proprietary technical information should be protected from disclosure.28 Both parties request attorneys’ fees and costs. DR and Senetas filed their pre-trial briefs on June 6, 2019, the pre-trial conference was held on June 7, 2019, and the trial on June 11, 2019. II | Senetas_Corporation,_Ltd_2019-07-30.txt |
7943e0eb-7848-4864-801f-80883013925f | . Analysis “Stockholders of Delaware corporations enjoy a qualified right to inspect the corporation’s books and records.”29 Section 220 requires that a stockholder seeking inspection of books and records: (1) be a stockholder of record; (2) comply with the form and manner requirements when making the demand; and (3) state a proper purpose for the requested inspection | Senetas_Corporation,_Ltd_2019-07-30.txt |
7a5d6c9b-8bfe-4584-a06d-add75a0d0df8 | .30 Section 220 defines a “proper purpose” as one “reasonably related to the party’s interest as a stockholder.”31 It is undisputed that Senetas was a stockholder of record and adhered to Section 220’s form and manner requirements. The issues in this case are: (A) does 28 Id. at 10-11. 29 Cf. KT4 Partners LLC v. Palantir Techs. Inc., 203 A.3d 738, 750 (Del | Senetas_Corporation,_Ltd_2019-07-30.txt |
2cdcba9a-315e-45e6-870e-080f5f2f8efd | . 2019) (“Stockholders of Delaware corporations have ‘a qualified common law and statutory right to inspect the corporation's books and records.’”) (citing Saito v. McKesson HBOC, Inc., 806 A.2d 113, 116 (Del. 2002)); Cent. Laborers Pension Fund v. News Corp., 45 A.3d 139, 143 (Del. 2012) (citations omitted). 30 8 Del. C. §220 (c)(1)-(3); see also Cent. Laborers Pension Fund, 45 A | Senetas_Corporation,_Ltd_2019-07-30.txt |
9b4c6dc2-2b23-441d-9448-ee4be233be82 | .3d at 143; Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 775 (Del. Ch. 2016). 31 Compaq Computer Corp. v. Horton, 631 A. 2d 1, 3 (Del. 1993) (citing 8 Del. C. § 220(b)); Barnes v. Sprouts Farmers Mkt., Inc., 2018 WL 3471351, at *4 (Del. Ch. July 18, 2018) (citation omitted); Rodgers v. Cypress Semiconductor Corp., 2017 WL 1380621, at *2 (Del. Ch. Apr. 17, 2017) (citation omitted) | Senetas_Corporation,_Ltd_2019-07-30.txt |
8b8e1d0e-4b45-4732-8f2a-83cad7a33e43 | . Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No. 2019-0170-PWG July 30, 2019 8 Senetas have a proper purpose for seeking to inspect DR’s books and records; (B) was Senetas’ proper purpose offered under false pretenses, or an attempt to “side- step” the proper purpose requirement; and (C) should the inspection be conditioned on a confidentiality agreement?32 A | Senetas_Corporation,_Ltd_2019-07-30.txt |
193f455c-dfb9-46d8-83f2-0590d55b1e77 | . Is Senetas’ Demand for a proper purpose? Senetas states its purpose as determining the “true value of the Company’s assets, and whether its assets and opportunities are being managed and pursued in a way that maximizes shareholder value.”33 It intends to inspect the books and records “to determine if [DR] is being properly managed | Senetas_Corporation,_Ltd_2019-07-30.txt |
10148c98-4b07-45ad-8b06-7815ded5b80f | .”34 Senetas argues it is entitled to inspect DR’s books and records for a proper purpose – to investigate mismanagement, waste and wrongdoing – and that it has demonstrated more than a credible basis from which the Court can infer possible mismanagement | Senetas_Corporation,_Ltd_2019-07-30.txt |
ce385018-e513-4cd5-8745-a97c3ef7812f | . It claims DR’s management failed to follow corporate governance mechanics and made critical business decisions without consulting with the Board or stockholders; failed to act with due diligence related to undertaking an ICO and discontinuing efforts to pursue FDA approval of DR’s product; failed to keep systematic or 32 There is an additional issue whether the scope of inspection in Senetas’ | Senetas_Corporation,_Ltd_2019-07-30.txt |
f8d2cf13-22cf-4761-a0a1-082ad525c73a | Demand is properly tailored to its stated purpose | Senetas_Corporation,_Ltd_2019-07-30.txt |
34a07e05-1a0e-407d-9f85-fe6944697a5b | . I do not address that issue in this report and ask the parties to confer, once this report is final, and submit any remaining areas of disagreement on the scope of the inspection to the Court. 33 D.I. 1, Ex. 2. 34 Id. Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
79a41e28-5f83-4870-9e4e-f49813dfdd7b | . 2019-0170-PWG July 30, 2019 9 accurate financial records; failed to keep the Board reasonably informed about DR’s operations; misled investors; and breached their duty of loyalty and their employment agreements by diverting time and attention from DR’s operations, and by misappropriating DR’s intellectual property, to organize and promote a competitor | Senetas_Corporation,_Ltd_2019-07-30.txt |
0b21039a-6a2b-4cbe-8eb2-46257fdb9fb2 | .35 DR asserts that Senetas does not “articulate a cognizable purpose for much of its Demand,” and that Senetas knows that “there has been no misappropriation of its investment.”36 The predominate factor in determining whether a stockholder is entitled to inspection is the propriety of their purpose | Senetas_Corporation,_Ltd_2019-07-30.txt |
09433a39-8699-409c-abab-b5be9a09ea69 | .37 The stockholder has the burden of showing that it has a proper purpose for seeking to inspect books and records.38 Valuation of a stockholder’s shares is a proper purpose for inspection.39 And, it is 35 D.I. 46, at 54. 36 D.I. 43, at 1-2. 37 CM & M Grp., Inc. v. Carroll, 453 A.2d 788, 792 (Del. 1982). 38 8 Del. C §220(c)(3). Cf. Rodgers, 2017 WL 1380621, at *3; Grimes v. DSC Commc’ns Corp | Senetas_Corporation,_Ltd_2019-07-30.txt |
a708836d-294b-4644-bae8-fc3f47fb1fec | ., 724 A.2d 561, 565 (Del. Ch. 1998); Helmsman Mgmt. Servs., Inc. v. A&S Consultants, Inc., 525 A.2d 160, 164 (Del. Ch. 1987); Skouras v. Admiralty Enterprises, Inc., 386 A.2d 674, 678 (Del. Ch. 1978). 39 Cf. CM & M Grp., Inc., 453 A.2d at 792. Senetas’ Demand questions “the true value of [DR’s] assets.” See generally Forsythe v. CIBC Emp. Private Equity Fund U.S. I LP, 2005 WL 1653963, *4 (Del | Senetas_Corporation,_Ltd_2019-07-30.txt |
dbb9fc00-a366-4b7c-a586-1887e178188c | . Ch. July 7, 2005) (in the demand letter, the plaintiffs stated one of their purposes was “to determine the value of certain assets [held by the entity] (and thereby, the court assumes, the value of their units)”). Senetas Corporation, Ltd. v. DeepRadiology Corporation C.A. No | Senetas_Corporation,_Ltd_2019-07-30.txt |
5862349d-3c5a-43cf-8cb2-7a008be2892e | . 2019-0170-PWG July 30, 2019 10 well settled that the investigation of mismanagement, waste and wrongdoing is a proper purpose for inspection | Senetas_Corporation,_Ltd_2019-07-30.txt |
de965f60-e515-477a-94c4-7bc8c24b68fd | .40 Stockholders “need only show, by a preponderance of the evidence, a credible basis from which the Court of Chancery can infer there is possible mismanagement that would warrant further investigation,” and are not required to show actual wrongdoing or mismanagement | Senetas_Corporation,_Ltd_2019-07-30.txt |
e195e27e-9f40-40b0-ada9-8a4848f33f63 | .41 This threshold requirement “sets the lowest possible burden of proof,” and may be met “by a credible showing, through documents, logic, testimony or otherwise, that there are legitimate issues of wrongdoing.”42 But, a stockholder “must do more than state in a conclusory manner, a generally accepted proper purpose” – the investigation of corporate mismanagement “must be to some end | Senetas_Corporation,_Ltd_2019-07-30.txt |
2949d0e6-eca2-4af7-8e92-a4735bfa903f | .”43 “Mere curiosity or a desire for a fishing expedition will not suffice.”44 40 Cf. Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 119 (Del. 2006)(stockholders may obtain information “about corporate mismanagement, waste or wrongdoing” that can be used in several ways); In re Facebook, Inc. Section 220 Litig., 2019 WL 2320842, at *13 (Del. Ch | Senetas_Corporation,_Ltd_2019-07-30.txt |
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