Disclosure of Internal Investigative Reports and A Predictable Response: Espinoza v. HP (Part 4B)

The Court's application of the "essential" standard shows the degree to which the element will be available in restricting access to relevant material even after shareholders have established a proper purpose and a credible basis. 

First, the Court found that the Report was not "essential" because it did not discuss "the 'for cause' termination issue." In other words, the Court did not rely on the content of the Report but on the absence one specific discussion.  Even without this discussion, however, the contents likely played a role in the Board's decision making process.  The Report was designed to provide the Board with information on the allegations of wrongdoing.  See Complaint, at P. 5 (investigation was initiated "to investigate the allegations contained in the Allred letter").  Since the Report was presented to the Board, it presumably helped inform directors with respect to any decision taken concerning the CEO.   

Second, the Court suggested that "essential" also meant "central" to the Board's deliberations.  The Court cited no precedent for this requirement.  Moreover, the Court acknowledged that the Board may have "consulted" the Report.  In other words, it wasn't enough to show board awareness.  Shareholders instead had to be able to describe the particular role played by the Report in the decision making process.  The Court did not explain how plaintiffs, at the pleading stage, would be able to make this showing.  

Finally, even if "essential" or "central," the Report did not have to be disclosed were the "essential elements" had already been revealed.  Plaintiff was made aware of the process used in the investigation as a result of receiving "board minutes describing what materials were considered and when meetings took place"  Plaintiff was also made aware of the "critical findings" in the Report, particularly that the CEO "violated HP's business conduct rules, but not its sexual harassment policy". 

The investigation that resulted in the Report, however, apparently involved an analysis, as an article in the WSJ suggested, of "phone calls . . . and PC usage" and interviews with relevant parties.  In other words, it looks to have been thorough.  The Report, therefore, probably included information that went to the strength of the allegations and the credibility of the persons involved.  Such information could impact the Board's analysis.  Nonetheless, the Court apparently did not consider this type of evidence "essential." 

The Court's analysis, therefore, provides a roadmap for avoiding disclosure of sensitive material.  The materials should avoid mentioning the ultimate issue at the center of the alleged wrongdoing.  To the extent that analysis of the specific matter at issue is necessary, it should be included in a separate document.  The sensitive material should be only part of the information given to the Board, requiring shareholders to establish the centrality of the documents.  And, finally, disclosure can at least sometimes be avoided if the conclusions in the senstive document are disclosed.