Hexion v. Huntsman; Vice Chancellor Lamb's Discovery Ruling: Distinguishing Between Financial Consultants and Litigation Consultants

Merrill Lynch served as Huntsman’s financial advisor in connection with its July 2007 merger agreement with Hexion. By my posts of June 28 and August 4, I have commented on this case, in which Hexion is attempting to back out of the deal. On June 24, 2008, Hunstman also retained Merrill as its “litigation consultant” in connection with the litigation. In this discovery dispute, Hexion sought documentation evidencing Merrill’s work as financial advisor after June 18, 2008. Huntsman refused to provide it. The focus of the dispute became Chancery Rule 26(b)(4)(B) (based upon the Federal Rule of Civil Procedure of the same identification):

“A party may discover facts known or opinions held by an expert who has been retained or specially employed by another party in anticipation of litigation or preparation for trial and who is not expected to be called as a witness at trial, only as provided in Rule 35(b) [applicable to physical and mental examinations] or upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject by other means.”

Vice Chancellor Lamb granted Hexion’s motion to compel. He concluded that because Merrill was performing dual roles for Huntsman (continuing as its financial advisor and acting as a litigation consultant), and because Huntsman and Merrill had made no effort to distinguish the two roles (by, for example, setting up separate and distinct financial advisory and litigation consulting teams), Rule 26(b)(4)(B) was not available. The Vice Chancellor was also clearly influenced by the potential for abuse in using one consultant for dual purposes to cloak legitimate fact witnesses:

“The present case raises an additional ground to deny the application of that rule [Rule 26(b)(4)(B)] because the proponent (Huntsman) is trying to use the rule to shield testimony by a natural fact witness.”

August 22, 2008 Opinion at 9.

The Vice Chancellor also rejected Huntsman’s claims that Merrill’s work was protected by the work product doctrine, the attorney-client privilege, and the business strategy immunity.

The Vice Chancellor’s decision points up the risk in designating a financial advisor as a litigation consultant. To protect the advisor’s work product and opinions from discovery, the prudent course is to retain a separate consultant. If that is impracticable or inefficient, then, at a minimum, the financial advisor should set up a completely separate litigation consulting team, and a Chinese wall established between the two teams. Otherwise, all work product of the financial advisor is likely to be subject to discovery.