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v. CROSSFIT, INC.

, a Delaware corporation, and GREG GLASSMAN, Defendants/ Counterclaim Plaintiffs

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C.A.No. 7717-VCG PUBLIC VERSION -FILED OCTOBER 31, 2012

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DEFENDANTS' REPLY IN FURTHER SUPPORT OF THEIR MOTION TO COMPEL PRODUCTION FROM THIRD-PARTY ANTHOS CAPITAL 1. Defendants' counterclaim alleges that Plaintiff Lauren Glassman secretly

gave confidential documents to non-party Anthos Capital ("Anthos") in order to obtain a personal financial benefit: Namely, an agreement from Anthos to acquire her equity stake in CrossFit, Inc. ("CrossFit" or the "Company") for $20 million. The counterclaim further alleges that Plaintiff has conspired with Anthos to put pressure on Defendant Greg Glassman to consent to that sale (which would otherwise be precluded by the pending divorce proceedings absent court approval). More specifically, Plaintiff and Anthos planned to use Ms. Glassman's status as a director to create "gridlock" at the Company unless Mr. Glassman consented. The counterclaim alleges that, as part of that plan, Plaintiff filed her breach of fiduciary duty claims against Mr. Glassman and CrossFit regarding the purchase of a company airplane. The counterclaim alleges that Ms.

Glassman had been fully aware of that pending purchase, and raised no objection to it at

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from the outset to exert "leverage" over Mr. Glassman, that Anthos discussed Ms. Glassman's lawsuit with her counsel before it was filed, and that Anthos and Ms. Glassman have consistently discussed how these proceedings could be used either in the Arizona proceeding or in their PR campaign. Indeed, Anthos and Ms. Glassman have even discussed an agreement by which Anthos would advance part of Ms. Glassman's legal fees. 3. Defendants sought discovery concerning Anthos5 communications with Ms,

Glassman, as well as Anthos' internal plans and deliberations regarding CrossFit. Among other things. Defendants sought documents concerning Anthos' "gridlock" strategy, its plans regarding the Company, and its strategies for compelling Mr. Glassman to consent to tliose plans. Such material is relevant to Defendants' claims and likely to lead to admissible evidence regarding them. Such evidence will not only help establish that Ms. Glassman breached her fiduciary duties, but also the irreparable harm that will result from those breaches unless her transaction with Anthos is enjoined. This Court has agreed with the relevance of these materials - stating in its Order that, "business plans and valuation materials could be useful to prove ... that CrossFit would be irreparably harmed by the deal." Order at 14.

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opportunity, Anthos has yet to produce a privilege log - even as to the thirteen documents that it seeks to shield from Ms. Glassman's production. Even its opposition brief does nothing to satisfy Anthos' burden of showing that those particular documents were exchanged in furtherance of that asserted "common interest." 5. Anthos then seeks to expand the "common interest" to include not merely

communications about defending against Defendants' claims, but also communications about "pursuing potential claims Ms, Glassman and Anthos may have against Defendants." That is not a valid "common interest" at all. Ms. Glassman is a

shareholder and director of CrossFit; Anthos is neither. Accordingly, Anthos has no claims to bring against Defendants, and the mere fact that it may benefit from Ms. Glassman bringing such claims is not a cognizable legal interest. Similarly, Anthos' apparent desire for Ms. Glassman to use litigation as a vehicle to exert leverage against Defendants, or to obtain discovery for other purposes, is not a legally protectable "common interest." Even if it were such an interest, Anthos again has not shown that any of the communications at issue were made in furtherance of it. 6. Finally, Anthos claims that its internal communications and analyses are

protected under the "business strategy" immunity. However, as this Court has already

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offered to match Anthos' offer as part of the Arizona divorce proceedings, not as part of a competitive bidding environment. Finally, even if any protection applied on that basis, it would at most extend to Anthos' "reserve price" - it would not extend to Anthos' plans to exert leverage over Mr. Glassman or to coerce him into consenting to the sale. It certainly would not extend to Anthos' plans for how to run CrossFit after the completion of the proposed transaction. 7, Despite months of opportunity to do so, both by itself and via Ms.

Glassman, Anthos has not met its burden of showing that any of the documents at issue either the thirteen in Ms. Glassman's possession or the still-unknown number in Anthos' possession - have been properly withheld. therefore be granted. I. FACTUAL BACKGROUND 8. The essence of Defendants' counterclaims - and the reason for seeking Defendants' motion to compel should

discovery from Anthos in this matter - is that Plaintiff, working in concert with Anthos to the detriment of Defendants, sought to create "gridlock" over Defendants' operations to force them to approve the sale of her equity interest to Anthos. Counterclaims lfl[ 80-83. The "gridlock" strategy is not a term that Defendants invented; rather, it comes directly

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undertaken not for any proper purpose, but to inflict injury on the company to which she owed fiduciary duties of care and loyalty. Id. Tffl 6-7, Indeed, Defendants have asked this Court to enjoin Ms. Glassman's sale of her interest in CrossFit to Anthos because it was a direct result of her breach of fiduciary duties and would result in irreparable harm to the Company and Mr. Glassman. 9. It is now apparent that Defendants were correct in their belief regarding

Plaintiffs and Anthos' motivations for this litigation. Based on documents recently produced by Plaintiff (as a result of the Court's order compelling discovery), and as Defendants have contended from the outset, Plaintiff and Anthos have been working together to use the present litigation to gain an advantage in the Arizona litigation and to obtain leverage over Mr, Glassman to force him to approve the sale, 10. As early as May 23, Anthos' managing partner Bryan Kelly requested a

conference call with Plaintiff Lauren Glassman and her counsel, remarking on how "critical" it was to have "leverage" over Defendant Greg Glassman with respect to any agreement.1 Ex. 1 (BE 000622). Then, four days before Ms. Glassman commenced this

Defendants note that, despite Plaintiffs earlier protestations to the contrary, Bergeson LLP - and not just Gunderson Dettmer - was involved in these transactional communications. 5

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partner, Paul Fan*: "Get ready tor fireworks to begin." Ex. 3 (A001622), 1L Once litigation commenced, Anthos' counsel discussed with Ms.

Glassman's counsel the prospect of using "information of wrongdoing" discovered in Delaware for purposes of leverage in the Arizona suit. Ex. 4 (BE004133). Anthos has also at least discussed an arrangement with Ms, Glassman whereby Anthos would advance $250,000 to Ms. Glassman "to cover part of her legal expenses," subject to reimbursement if the sale goes through cither to Anthos or to Mr. Glassman. Ex. 5 (BE004343). 12, In sum, Anthos has been aware of these proceedings from the beginning,

been an active architect of them, and has advocated the use of litigation generally as leverage for its own ends. In light of this strategy, Anthos' suggestion that it had no idea of the present motion practice, or the nature of the discovery in this case, is highly questionable. To the contrary, it appears that discovery, rather than the vindication of any legal right, is the basis of this suit. 13. With respect to the matters presently at issue, Anthos has had knowledge of

Defendants5 discovery requests for two and a half months - Defendants* subpoena was served on Anthos through its registered agent on August 10. Since then, Anthos has

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further, when it sent documents via Federal Express to arrive on Monday, October 22, and still has not provided a privilege log. Thus, more than two months later, Defendants do not know the extent or nature of Anthos' materials and claims of privilege. 14. As early as September 13, Defendants informed counsel for Anthos of their

motion to compel as to Ms. Glassman, and their arguments with respect to common interest and business strategy. See Ex. 6 (Sept. 13 Letter). On September 17, Anthos replied that it understood that the briefing before the Court was taking place, and that "the Vice Chancellor's ruling on the pending motion will certainly inform our thinking." See Ex. 7 (Sept. 17, 2012 Letter). Defendants' Motion to Compel as to Antlios was filed on September 25, and served on Plaintiffs counsel via LEXIS File & Serve. Even Anthos does not contend it was actually unaware of this motion until October 10. Further, when it did receive the present Motion, Antlios agreed Hint this Court should address the merits of the motion to compel as to Plaintiff first. See Ex. 8 (Oct 10, 2012 email from Paul Serritella to A. Dunning). 15, Anthos' assertion that Defendants asked the Court to "delay consideration" Defendants did not ask this Court to

of the Anthos Motion (Opp. at 4) is inaccurate.

"delay" anything; rather, Defendants asked the Court not to delay its ruling on their

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constantly shifting bases for months after filing. IL ANTHOS HAS NOT MET ITS BURDEN OF SHOWING THAT THE COMMON INTEREST DOCTRINE APPLIES 16. Anthos asserts that it possesses documents that might, in fact, be protected

under the common interest doctrine. Opp. at 7. However, it has produced no log to substantiate these assertions. In the ordinary course, such a failure to provide a privilege log would constitute waiver of claims of privilege. See Fingold v. Computer Entry Sys. Corp., 1990 WL 11633, at *1 (Del. Ch. Jan. 26, 1990). In the present case, during yesterday's hearing, the Court instructed Anthos to provide a log one day prior to the hearing on October 30, 2012. Defendants note their concern as to whether they can adequately review and investigate Anthos' production and log prior to the hearing, and reserve all rights to raise objections to Anthos' production and log thereafter. 17. At a minimum, Defendants note that Anthos has not even provided a

privilege log as to the "thirteen documents" identified in its October 16 letter to the Court that are in Ms. Glassman's possession, and over which Anthos claims common interest

For Anthos to assert that Defendants' Motion to Compel - which sought production of Anthos' documents and a privilege log based on its failure to produce timely discovery is "premature" is particularly bizarre. (Opp. at 4.) Had Defendants waited until Anthos certified completion of production, which it has not promised to do even by the October 30 hearing, further discovery and trial in this matter would have been impossible. 8
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beyond the bare minimum that it can get away with until the last minute, requiring Defendants to seek simple compliance with their subpoena. 18. The only privilege log that has been provided to date concerning the

"thirteen documents" is Ms, Glassman's - and it does not support Anthos' assertions. That privilege log contains three descriptions (with immaterial variations) of the documents at issue: "Communication re: Draft response to G. Glassman's Announcement of Purchase and Sale Agreement with attached draft" "Communication re Conflict of Interest between G. Glassman and CrossFit, Inc. with attached draft letter" "Communication re Discovery in DE action"

(For the Court's convenience, Defendants have attached as Exhibit 9 the relevant excerpts from Ms. Glassman's privilege log.) 19. Because Anthos has not even attempted to meet its burden, Defendants can

only rc-itcratc the arguments raised in their opening brief (and in briefing on the motion to compel documents from Plaintiff): Documents created prior to the formation of the Anthos Purchase and Sale Agreement cannot constitute common interest

communications, as the parties had no common interest, and documents created thereafter

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interest in consummating the purchase transaction. Therefore, Anthos has not met its burden of proving that the purportedly "common interest" documents are protected, and they must be produced. 20. Anthos further asserts that it may share a common interest as to "any claims

[Ms. Glassman and Anthos] may have against Defendants," Opp. at 7. That assertion sweeps far too broadly. As Defendants have previously argued, and as this Court has ruled, Anthos' interest in the Delaware and Arizona matters is purely commercial, not legal. See Mot. f 21. It is plain that Anthos and Ms. Glassman do not share common legal interests as plaintiffs. As a matter of black-letter law, & potential shareholder such as Anthos is not owed fiduciary duties. See Feldman v. Cutaia, 2006 WL 920420, at *6 n.37 (Del. Ch. Apr. 5, 2006) ("The Delaware Supreme Court has consistently held that directors do not owe fiduciary duties to future stockholders"). Nor is Anthos a director, and it therefore has no standing to bring suit as such. Accordingly, Anthos and Plaintiff have no legally protectable "common interest" that would allow them to shield such communications from discovery.

Indeed, accepting Anthos5 argument would raise serious public policy concerns. Delaware law docs not and should not shield under the common interest doctrine communications between a director and a non-shareholder relating to potential claims 10
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arguea at lengtn, tne purponea Aninos transaction is signea ana mere is no ongoing risk to any active, arms-length negotiation. Mot. *|ffl 18-19. This Court has already weighed the risk of disclosure of purported business strategy materials, and determined that Plaintiffs purported "business strategy" documents must nonetheless be produced. Order at 14. Defendants reiterate their undertaking to the Court that any materials produced by Anthos that are properly designated as "attorneys-eyes-only" will be maintained as such, and will not be used for any improper purpose - therefore, the commercial risk here is nonexistent. On that basis, Anthos' business strategy materials must be produced. 22. Although the Court's Order has already addressed the point (Order at 12-

13), Defendants reiterate that Mr. Glassman's offer to match the economic value of the Anthos contract does not constitute an ongoing bidding war. See Opp. at 2. Anthos and Ms. Glassman continue to assert that their agreement is final and binding; Mr. Glassman, in response, has asserted that if he can match the economic value to Ms. Glassman, the Arizona Court should not approve the Anthos sale. The parties are not presently bidding against one another, and there is no ongoing business strategy to protect. Anthos5

they seek to bring against the entity to which the director owes fiduciary duties - any rule to the contrary would allow a faithless director to shield direct evidence of breaches of fiduciary duty (as Defendants contend occurred here) from the party to whom diose duties were owed. 11
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a small portion of Anthos5 production. 23. Contrary to Anthos5 assertion, Defendants emphatically did not (and do

not) concede that "internal Anthos valuations, plans and strategies" are protected by business strategy. Opp. at 1-2. Defendants specifically requested Anthos5 business plans and related documents, including but not limited to "plans for forcing CrossFit and Mr, Glassman to approve the Purchase Agreement, or for management of CrossFit postacquisition." Mot. 118. 24. As this Court has held, such materials are relevant to show the harm to both

Mr. Glassman and CrossFit if the sale is allowed to go forward. See Order at 14; see also Counterclaims ^ 1, They also go to the merits of Defendants' counterclaim that Anthos' use of CrossFit's confidential information was not limited to mere valuation, but was used to gain insight as to how to exert leverage over Mr. Glassman to consent to the sale, or to put pressure on the Company's business partners - the so-called "gridlock strategy".

Moreover, such an argument would at most extend to information concerning Anthos5 "reserve price" as to Ms. Glassman's equity, not to other documents concerning, for example, Anthos' plans to undermine Mr. Glassman as CEO or to force him to consent to the sale by engaging in burdensome litigation tactics, 12
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tills Court should compel production of all documents witlilield on the basis of business strategy, common interest, or other improper bases.

OF COUNSEL: Blair G. Connelly William O. Reckler Paul Scrritclla Kyle L.Wallace Latham & Watkins LLP 885 Third Avenue New York, New York 10022 (212)906-1200 Dated: October 24, 2012

Isi Raymond J, DiCamillo Raymond J. DiCamillo (#3188) Kevin M. Gallagher (#5337) Richards, Layton & Finger, P.A. 920 North King Street Wilmington, Delaware 19801 (302)651-7700 Attorneys for Defendants CrossFit, Inc. and Greg Glassman

Anthos also argues for a "balancing" test. (Opp. at 11.) However, that argument is misplaced where, as here, there is no husiness strategy to protect. Anthos mustfirstmake out SLprima facie case for application of the doctrine; it has not done so here. 13
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