`
`D1 JASPER HOLDINGS LP, D1 SPV JL
`MASTER LP, JAY BLOCKER LTD., JAY
`DOMESTIC LLC, GCCU II LLC, TOCU XX
`LLC, OC II FIE VIII LP, JL SPV HOLDINGS,
`LLC, EMS J-INV LLC, DISRUPTIVE
`TECHNOLOGY SOLUTIONS XIV, LLC,
`DISRUPTIVE TECHNOLOGY SOLUTIONS
`XVI, LLC–SERIES A, DISRUPTIVE
`TECHNOLOGY SOLUTIONS XVI, LLC–
`SERIES B, and DISRUPTIVE TECHNOLOGY
`SOLUTIONS XVI, LLC–SERIES C,
`Plaintiffs,
`
`v.
`JUUL LABS, INC. and JL TAO LLC,
`Defendants.
`
`C.A. No. 2023-1060-NAC
`PUBLIC VERSION FILED:
`April 1, 2024
`
`PLAINTIFFS’ MOTION TO COMPEL,
`OR IN THE ALTERNATIVE, TO STRIKE
`
`1.
`
`The trial testimony of David Barse, a JUUL director and member of the
`
`Independent Committee of JUUL’s Board that approved the Insider Financing,
`
`strikes at the heart of the fundamental principle that privilege cannot be used as both
`
`a sword and a shield.
`
`2.
`
`During discovery, Defendants aggressively shielded from Plaintiffs any
`
`and all information that the Independent Committee considered in authorizing the
`
`Insider Financing. In addition to withholding as privileged dozens of documents
`
`EFiled: Apr 01 2024 03:54PM EDT
`Transaction ID 72649671
`Case No. 2023-1060-NAC
`
`
`
`involving advice that the Committee received, counsel for JUUL and for the
`
`Independent Committee instructed Barse, along with the other member of the
`
`Independent Committee, Paul Aronzon, not to answer any questions on myriad
`
`topics that they had discussed with their counsel, including questions directed at
`
`discovering the facts of which the Committee was aware, and on which the
`
`Committee based its decision. For example, Barse and Aronzon were instructed not
`
`to answer questions regarding their knowledge about the relationship between
`
`Pritzker and JL Tao; the circumstances of Bowen’s resignation from the Board; and
`
`which Insider entities’ contributions counted towards a Qualified Financing. And in
`
`cases where Barse and Aronzon were permitted to answer questions, they testified
`
`that they were unaware of relevant facts.
`
`3.
`
`Yet Barse told a completely different story at trial. He affirmatively
`
`introduced the very advice and facts that JUUL and the Independent Committee had
`
`refused to provide in discovery: Barse testified about the substance of the advice he
`
`supposedly received from the Independent Committee’s counsel; he testified that the
`
`Independent Committee had been advised by counsel about the requirements for a
`
`Qualified Financing; he testified about what he believed those requirements to be
`
`and which entities he believed met those requirements; and he claimed that his
`
`recollection had been refreshed by counsel as to facts about which he denied any
`
`knowledge at his deposition only five weeks prior.
`2
`
`
`
`4.
`
`Defendants made a tactical choice during discovery to shield basic
`
`information from Plaintiffs. Their choice has consequences. Based on Barse’s
`
`waiver of attorney-client privilege in his trial testimony, Defendants should be
`
`ordered to produce all documents reflecting the advice the Independent Committee
`
`received as to whether the Insider Financing constitutes a Qualified Financing, and
`
`as to the requirements of a Qualified Financing. Alternatively, Barse’s trial
`
`testimony should be stricken from the record, and the Court should infer that the
`
`Independent Committee failed to conduct any meaningful analysis as to whether or
`
`not the Insider Financing was a Qualified Financing.
`
`I.
`
`BACKGROUND1
`The Independent Committee Rubber Stamps the Insider Financing.
`As shown in Plaintiffs’ Pre-Trial Briefs (D.I. 224, 238), JUUL used the
`5.
`
`Independent Committee to rubber stamp the Insider Financing. (D.I. 224 at 49-51.)
`
`Neither the Independent Committee nor its counsel did any meaningful independent
`
`investigation into the facts underlying the Insider Financing, including the
`
`relationship between Pritzker and JL Tao. And, to the extent the Independent
`
`Committee considered those facts or any other relevant facts regarding the Insider
`
`
`1 The trial transcript is cited as “[Last Name] Tr. __.” Deposition transcripts are cited as
`“[Last Name] Dep. __.” Capitalized terms not defined herein have the same meaning
`as in Plaintiffs’ Pre-Trial Briefs. (D.I. 224, 238.)
`3
`
`
`
`
`
`
`
`Financing, Defendants blocked any discovery into those topics through extremely
`
`broad privilege assertions—before Defendants reversed course and abandoned those
`
`positions at trial, choosing to elicit testimony from Barse about the advice and
`
`information he received from counsel.
`
`6.
`
`Barse and Aronzon’s review of written materials (other than,
`
`potentially, undisclosed materials provided by counsel) started and stopped with a
`
`self-serving advocacy presentation by the Skadden law firm and financial adviser
`
`Guggenheim Partners,2 both of which represented Pritzker and Valani3—two of the
`
`Insiders whose conflicted interests warranted the appointment of independent
`
`directors
`
`in
`
`the first place.
`
` The Independent Committee received
`
`the
`
`Skadden/Guggenheim deck arguing in favor of a Qualified Financing just days
`
`before the Independent Committee approved resolutions providing that “the
`
`Committee believes the Financing constitutes a ‘Qualified Financing’ as defined in
`
`the Note Purchase Agreements.”4 The Committee otherwise relied on its counsel to
`
`diligence the facts of the Insider Financing.5 Indeed, at his deposition on February
`
`
`2 Barse Dep. 144:20-145:10; Aronzon Dep. 137:6-138:8.
`3 Pritzker Tr. 211:10-14; Valani Tr. 113:13-23; Barse Dep. 140:24-141:8.
`4 JX-1111 at 9 (Independent Committee resolutions dated October 14, 2023); see also
`JX-1086 (Guggenheim/Skadden materials shared with the Independent Committee on
`October 9 and 10).
`5 Aronzon Dep. 259:8-260:1; Barse Dep. 152:3-10.
`4
`
`
`
`
`
`
`
`8, Barse testified that he did not know: whether Pritzker had ever been a beneficiary
`
`of JL Tao;6 as of October 2023, how long the then-operative ownership or
`
`management structure of JL Tao had been in place;7 or what Tao Capital
`
`Management LP is or how it is related to Pritzker.8
`
`7.
`
`Based on the information provided in discovery, the Independent
`
`Committee’s counsel at Milbank also lacked access to the facts necessary to advise
`
`the Independent Committee. In response to Plaintiffs’ document requests,
`
`Defendants’ counsel disclosed that the only materials provided to the Independent
`
`Committee’s counsel to diligence the representations in the Skadden/Guggenheim
`
`deck were limited to: (1) JL Tao’s Third Amended and Restated Operating
`
`Agreement, dated September 14, 2023 (after the various management and ownership
`
`changes made to JL Tao leading up to the Insider Financing), and (2) the trust
`
`instrument approving JL Tao’s participation in the Insider Financing, signed by its
`
`recently installed trustees.9
`
`
`6 Barse Dep. 134:18-135:2; see also id. 137:2-6.
`7 Id. 135:3-8, 135:21-136:2; see also id. 137:7-11; Aronzon Dep. 308:14-19.
`8 Barse Dep. 137:12-18.
`9 JX-1196 (citing JX-1002 and JX-1028).
`5
`
`
`
`
`
`
`
`II. Defendants Block Discovery into the Independent Committee’s and Its
`Counsel’s Analysis of the Insider Financing.
`The information recounted in the three paragraphs above is the full
`8.
`
`extent of the disclosures Defendants made before trial regarding the Independent
`
`Committee’s analysis of the Insider Financing. Defendants and the Independent
`
`Committee’s counsel otherwise made extremely broad privilege assertions,
`
`instructing Aronzon and Barse not to reveal even facts learned from or discussed
`
`with counsel, and not to answer questions on topics including:
`
`• Any “discussion” in which Perkovich (the head of Pritzker’s family
`office) was mentioned, or the nature of the relationship between
`Pritzker and JL Tao;10
`
`• Discussions concerning Bowen’s resignation from the Board in
`connection with attempting to manufacture a Qualified Financing;11
`
`• What “material facts” the Independent Committee was aware of
`“related to the nature of the relationships and/or interests of the
`Interested Directors [referring to Valani and Pritzker] and/or their
`family members” in the Insider Financing;12
`
`• What information should be contained in any notice to investors of a
`purported Qualified Financing;13
`
`• What the requirements of a Qualified Financing were;14
`
`
`10 Aronzon Dep. 90:9-20, 174:5-14.
`11 Id. 99:11-19, 100:19-102:4; Barse Dep. 106:9-20.
`12 Aronzon Dep. 184:6-187:13.
`13 Id. 149:3-20.
`14 Id. 314:5-21.
`
`6
`
`
`
`
`
`
`
`• What the intent of the parties to the notes agreements was, and how that
`intent might be relevant;15 and
`
`• Which entities’ contributions did and did not count toward a Qualified
`Financing.16
`For instance, counsel for JUUL instructed Aronzon not to disclose the
`
`9.
`
`facts of which he was aware with respect to JL Tao when the Independent Committee
`
`signed off on the Insider Financing, which facts explicitly are referenced in the
`
`Committee’s resolutions approving the Insider Financing:
`
`
`
`Q. Third whereas clause [referring to JX-1111 at 7], where it says, “the
`Committee is aware of the material facts related to the nature of the
`relationships and/or interests of the Interested Directors.” Do you see
`that?
` A. Yes.
`Q. “And/or their family members.”
`A. Yes.
`Q. All right. What material facts were you aware of at the time you
`approved this relating to JL Tao?
`*
`*
`*
`MR. COOPER [CLEARY]: We can see what he knows, but I don’t
`want him disclosing communications with counsel.
`MR. FLUMENBAUM: I want to know what he was aware of.
`THE WITNESS: All this information came from counsel on this
`subject. All of them.
`Q. What material facts were you aware of? Tell me the structure of JL
`Tao.
`MR. VORA [MILBANK]: Object to form.
`THE WITNESS: Again, all of this came from counsel.
`Q. It wouldn’t be privileged even if you were told what the structure of
`JL Tao would be.
`
`15 Barse Dep. 130:12-131:22, 132:22-133:6.
`16 Id. 149:23-150:21, 155:14-156:8.
`
`
`
`7
`
`
`
`
`
`
`
`A. That’s nice, but my lawyers need to tell me to answer the question.
`Q. What were the material facts that you were aware of about the
`structure of JL Tao?
`MR. COOPER: Same instruction.
`THE WITNESS: I don’t know how to answer this.
`Q. Can you tell me who the beneficiaries of JL Tao were?
`A. I’m at a loss here, guys. I don’t know how to answer this stuff
`because everything I know about this came from counsel.17
`
`10. Additionally, Defendants shielded on privilege grounds dozens of the
`
`Independent Committee’s communications with counsel concerning the Insider
`
`Financing and related analyses,18
`
`including communications between
`
`the
`
`Independent Committee and its advisers (and in some instances, Company or Board
`
`advisers and representatives, and the Insiders themselves). For example, the
`
`Independent Committee refused to produce:
`
`• Communications between the Independent Committee and its counsel
`about converting the notes around the time of the Backstop Agreement.
`(E.g., Log Nos. 187-190, 509, 659, 660.)
`
`• July 2023 communications between the Independent Committee and its
`counsel surrounding July backstop amendments and “strategic
`planning.” (E.g., Log Nos. 304-315; Exs. I, J.)
`
`• Emails discussing a draft “Structuring Analysis.” (E.g., Log Nos. 442-
`449, 463, 464, 468-470, 538, 628, 629, 636-638.)
`
`• October 2023 communications analyzing whether the Insider Financing
`constituted a Qualified Financing,
`including documents and
`communications attaching a “Qualified Financing Analysis (IC
`
`17 Aronzon Dep. 184:6-186:8.
`18 The documents and communications shielded, of which Plaintiffs are aware, are listed
`in Appendices 1-2.
`
`8
`
`
`
`
`
`
`
`Meeting 10-12-23)” and “IC Meeting Presentation (10-12-23)” (Log
`Nos. 473-476); “Calendar and Process Overview,” “Independent
`Committee Meeting Presentation (October 14, 2023),” and “Qualified
`Financing Materials (Cleary) (October 12, 2023)” (Log Nos. 483-488);
`and the Skadden/Guggenheim presentation (Log Nos. 467, 627).
`
`• Communications between the Independent Committee and its counsel
`discussing the Insider Financing, including drafts of term sheets and
`subscription agreements. (Log Nos. 323-327, 333-336, 351-352, 357,
`361, 365, 387, 388-401, 406-419, 436, 437, 450-456, 460, 465-466,
`471-472, 477-480, 521, 530-531, 537, 539-540, 630, 635, 639, 646;
`Exs. K, L.)
`III. At Trial, Barse Reverses Course.
`In the five weeks between his deposition and trial, Barse changed his
`11.
`
`story in two principal ways.
`
`12. First, contrary to his deposition testimony discussed above, Barse
`
`claimed at trial that counsel had made him aware of ownership and management
`
`changes to JL Tao in 2023.19 Barse acknowledged, as to his deposition testimony
`
`denying such knowledge, “[t]hat was my answer then,” but, because his recollection
`
`had been “refresh[ed],” “the answer I have today is different than the answer I had
`
`to certain of those questions in the deposition.”20
`
`13. Second, Barse testified that the Independent Committee’s counsel at
`
`Milbank had done “a thorough legal analysis of the contract and made
`
`
`19 Barse Tr. 338:6-19, 339:11-341:13.
`20 Id. 339:11-340:4, 340:11-18.
`
`9
`
`
`
`
`
`
`
`recommendations to us that – that the financing met the requirements” of a Qualified
`
`Financing under the notes agreements.21 And even though Barse had been instructed
`
`at his deposition not to answer, on privilege grounds, questions about which entities’
`
`contributions counted toward a Qualified Financing, Barse proceeded to testify at
`
`trial that the Independent Committee believed that the funds from Bowen’s and
`
`Monsees’s investment vehicles, as well as JL Tao, counted toward a Qualified
`
`Financing.22 Barse offered that testimony despite admitting in his deposition that he
`
`“relied on the advice of counsel to form that judgment” and that he had no
`
`“independent understanding”—other than from counsel’s advice—as to which
`
`investments “did or didn’t count” toward a Qualified Financing.23 Barse further
`
`testified about what he believed the contractual requirements for a Qualified
`
`Financing to be.24 None of this information was made available to Plaintiffs before
`
`trial—instead, as detailed above, Defendants actively shielded it.25
`
`
`
`21 Id. 367:8-24.
`22 Id. 372:19-373:14, 373:17-374:16.
`23 Barse Dep. 155:14-156:8.
`24 Barse Tr. 373:10-13, 374:12-16.
`25 Barse’s trial testimony is not the first time that JUUL has affirmatively shielded
`information in discovery only to later selectively disclose information on the same topic
`when it perceived that such selective disclosure would have some tactical advantage.
`At Barse’s deposition, for example, JUUL instructed Barse not to disclose the identities
`of investors associated with JUUL’s efforts to raise additional financing. Barse Dep.
`117:12-121:2. But three weeks after Barse’s deposition (and 12 days before trial),
`JUUL chose to selectively produce more than 25,000 pages of conditional subscription
`10
`
`
`
`
`
`
`
`I.
`
`ARGUMENT
`Defendants Have Waived Privilege by Putting the Independent
`Committee’s Legal Advice at Issue.
`14. During discovery, Defendants broadly asserted privilege over
`
`documents and deposition testimony concerning the advice that the Independent
`
`Committee received. Defendants’ abrupt turn of course at trial requires that the
`
`communications be fully disclosed. Where a party partially discloses a portion of a
`
`privileged communication, the party waives the privilege for all privileged
`
`communications on that subject matter. Citadel Holding Corp. v. Roven, 603 A.2d
`
`818, 825 (Del. 1992); D.R.E. 510(a).
`
`15.
`
`It is a fundamental principle of Delaware law that a party cannot use
`
`the attorney-client privilege as a sword and a shield. As this Court repeatedly has
`
`held, a party cannot “assert the attorney-client privilege as a shield to protect from
`
`disclosure any privileged communications regarding” a particular subject matter,
`
`“and later use those or similar communications as a sword in order to prove” their
`
`case. See, e.g., In re William Lyon Homes S’holder Litig., 2008 WL 3522437, at *4
`
`(Del. Ch. Aug. 8, 2008).
`
`
`agreements with purportedly new investors, despite having failed to produce in
`discovery any documents about, among other things, the circumstances of those
`investments or the relationships between the investors and JUUL and/or the Insiders.
`11
`
`
`
`
`
`
`
`16. Through Barse’s trial testimony, Defendants made a tactical choice in
`
`intentionally putting the Independent Committee’s counsel’s advice at issue. Barse
`
`testified that “our counsel” at Milbank supposedly “did a thorough legal analysis of
`
`the contract.”26 Barse then disclosed the substance of the advice he purportedly
`
`received: that the Insider Financing allegedly “met the requirements” under the
`
`NWPA to be a “qualified financing.”27 Barse proceeded to testify in detail about his
`
`views as to which Insider entities met which requirements of the notes agreements—
`
`the very subjects on which Barse and Aronzon followed their counsel’s instructions
`
`at their depositions not to testify.28 Supra ¶¶ 8-9. Barse also testified that his
`
`memory was “refresh[ed]” by a number of documents shown to him after his
`
`deposition.29
`
`17. Having put the advice received by the Independent Committee squarely
`
`at issue, Defendants must deal with the consequences of their tactical choice and
`
`produce the advice on which the Independent Committee purportedly relied. See,
`
`e.g., Amirsaleh v. Bd. of Trade of City of N.Y., Inc., 2008 WL 241616, at *3 (Del.
`
`Ch. Jan. 17, 2008). Defendants may not, on the one hand, tout a supposedly
`
`
`
`26 Barse. Tr. 367:8-24.
`27 Id. 367:17-24.
`28 Id. 372:19-374:16.
`29 Id. 340:11-18.
`
`12
`
`
`
`
`
`
`
`“thorough analysis” by counsel or assert their reliance on the substance of counsel’s
`
`advice while, on the other hand, withholding from Plaintiffs the discovery necessary
`
`to test those assertions. This is particularly true where, as here, a witness’s trial
`
`testimony discloses previously shielded information, such that Plaintiffs, having
`
`been denied discovery on those topics, were not afforded the opportunity to cross-
`
`examine the witness on his new assertions. Accordingly, the Court should order that
`
`Defendants and the Independent Committee produce all communications concerning
`
`any advice the Independent Committee received as to whether the Insider Financing
`
`constituted a Qualified Financing, and what the requirements of a Qualified
`
`Financing are, including the documents identified in Appendices 1-2.
`
`II. Alternatively, the Court Should Strike Barse’s Testimony and Infer that
`the Independent Committee Failed to Conduct Any Meaningful Analysis.
`18. Alternatively, Barse’s testimony—which completely contradicts the
`
`information that Defendants disclosed during discovery—should be stricken from
`
`the trial record, and the Court should infer that the Independent Committee failed to
`
`conduct any meaningful analysis as to whether the Insider Financing constituted a
`
`Qualified Financing.
`
`19.
`
`“By blocking discovery into” certain subjects, parties “have, as a legal
`
`and evidentiary matter, thereby precluded themselves from arguing or placing into
`
`evidence” information as to “which discovery was blocked.” See, e.g., Chesapeake
`
`13
`
`
`
`
`
`
`
`Corp. v. Shore, 771 A.2d 293, 301 & n.8 (Del. Ch. 2000) (citation omitted). Parties
`
`“must accept the consequences of their tactical choice” not to provide discovery.
`
`See id. at 301 n.8 (citation omitted). Thus, where defendants invoke privilege to
`
`shield from plaintiffs and the Court the professional advice that they received, “the
`
`only fair way to proceed is not to give any weight to any advice of this nature.” Id.
`
`at 301. Otherwise, “[t]he potential for abuse is simply too great.” Id.
`
`20. Here, the consequence of Defendants’ tactical choice during discovery
`
`to shield from Plaintiffs any information that the Independent Committee considered
`
`is that Defendants cannot rely on that very same information—disclosed for the first
`
`time at trial—to argue that the Insider Financing constituted a Qualified Financing.
`
`Barse’s testimony thus should be stricken.
`
`21. Further, the Court should infer, based on Defendants’ refusal to provide
`
`any discovery as to what the Independent Committee actually considered, that the
`
`Independent Committee failed to conduct any meaningful analysis into whether the
`
`Insider Financing was a Qualified Financing. See, e.g., In re Pure Res., Inc.,
`
`S’holders Litig., 808 A.2d 421, 431 n.8 (Del. Ch. 2002) (noting that “this court has
`
`explicitly drawn negative inferences when a board has shielded its actions from
`
`view”).
`
`14
`
`
`
`
`
`
`
`CONCLUSION
`Plaintiffs respectfully request that the Court order Defendants to produce all
`
`documents concerning any advice the Independent Committee received as to
`
`whether the Insider Financing constituted a Qualified Financing, and the
`
`requirements of a Qualified Financing. Alternatively, Plaintiffs ask that the Court
`
`strike Barse’s testimony and infer that the Independent Committee failed to conduct
`
`any meaningful analysis.
`
`
`
`15
`
`
`
`
`
`
`
`OF COUNSEL:
`
`Martin Flumenbaum
`Jeffrey J. Recher
`Nina Kovalenko
`PAUL, WEISS, RIFKIND,
`WHARTON & GARRISON LLP
`1285 Avenue of the Americas
`New York, NY 10019-6064
`(212) 373-3000
`
`Dated: March 22, 2024
`
`PAUL, WEISS, RIFKIND,
`WHARTON & GARRISON LLP
`
`By: /s/ Daniel A. Mason
`Daniel A. Mason (#5206)
`Sabrina M. Hendershot (#6286)
`Elizabeth Wang (#6620)
`1313 North Market Street, Suite 806
`Post Office Box 32
`Wilmington, DE 19899-0032
`(302) 655-4410
`
`WORDS: 2,943 of 3,000
`
`Attorneys for Plaintiffs D1 Jasper Holdings
`LP, D1 SPV JL Master LP, Jay Blocker
`Ltd., Jay Domestic LLC, GCCU II LLC,
`TOCU XX LLC, OC II FIE VIII LP, JL SPV
`Holdings, LLC, EMS J-INV LLC, Disruptive
`Technology Solutions XIV, LLC, Disruptive
`Technology Solutions XVI, LLC–Series A,
`Disruptive Technology Solutions XVI, LLC–
`Series B, and Disruptive Technology
`Solutions XVI, LLC–Series C
`
`16
`
`
`
`CERTIFICATE OF SERVICE
`
`I hereby certify
`
`that on April 1, 2024,
`
`the foregoing [PUBLIC]
`
`Plaintiffs’ Motion to Compel, or in the Alternative, to Strike was caused to be
`
`served upon the following counsel of record via File & ServeXpress:
`
`William M. Lafferty, Esq.
`David J. Teklits, Esq.
`Alexandra M. Cumings, Esq.
`Grant E. Michl, Esq.
`Kirk Andersen, Esq.
`MORRIS, NICHOLS, ARSHT
` & TUNNELL LLP
`1201 N. Market Street
`Wilmington, DE 19801
`
`Richard P. Rollo, Esq.
`Travis S. Hunter, Esq.
`John M. O’Toole, Esq.
`Alexander M. Krischik, Esq.
`RICHARDS, LAYTON
` & FINGER, P.A.
`920 North King Street
`Wilmington, Delaware 19801
`
`/s/ Sabrina M. Hendershot
`Sabrina M. Hendershot (#6286)
`
`