Yesterday’s post concerned the attorney-client privileged issues in Vice Chancellor J. Travis Laster’s recent decision in Kalisman v. Friedman, 2013 Del. Ch. LEXIS 100 (April 17, 2013). I found another statement in the decision even more intriguing -
When a director serves as the designee of a stockholder on the board, and when it is understood that the director acts as the stockholder’s representative, then the stockholder is generally entitled to the same information as the director.
This statement appears to be at odds with the statements of Chancellor William T. Allen in Holdgreiwe v. The Nostalgia Network, Inc., 1993 Del. Ch. LEXIS 71 (April 29, 1993), a case cited by Vice Chancellor Laster in Kalisman (albeit for a different proposition). In Holdgreiwe, the corporation sought to condition inspection by one of its directors, Daniel Holdgreiwe, upon the signing of a confidentiality agreement. Mr. Holdgreiwe was a nominee of one of the corporation’s stockholders, Concept Communications, Inc. Chancellor Allen declined to impose that condition, saying:
But conditioning Holdgreiwe’s right to inspect Nostalgia’s corporate books and records on his entry into an agreement binding him not to disclose any of the information he obtains to any third parties, including AVI [an affiliate of Concept] and Concept, seems to me to add little. He is already under an obligation to maintain the confidences of Nostalgia; to use its confidential information only to inform discussion among directors and action by the board or a committee. Disclosure of such information to AVI is a violation of duty whether or not an undertaking is entered. Thus, such an undertaking seems unnecessary.
On the one hand, Chancellor Allen seems to be saying that information conveyed to a director may be used only for the purposes of the corporation. On the other hand, Chancellor Allen quite conspicuously (and I assume intentionally) refers solely to AVI when speaking about a potential breach of fiduciary duty (Concept, not its affiliate AVI, had elected Mr. Holdgreiwe).
In Kalisman, Vice Chancellor Laster cites Moore Bus. Forms v. Cordant Holdings Corp., 1996 Del. Ch. LEXIS 56 (June 4, 1996). That case involved a stockholders’ agreement entitling a stockholder, Moore, to designate a director. Moore designated Mr. Rogers. Vice Chancellor (now Justice) Jack B. Jacobs had this to say:
All parties understood that Mr. Rogers would be acting as Moore’s representative on the Holdings Board and that his tenure as a director would be at Moore’s pleasure. The Stockholders Agreement cannot reasonably be construed otherwise. Nothing in the Stockholders Agreement precludes Moore from receiving any information imparted to Mr. Rogers. It therefore follows that if Mr. Rogers was entitled to the disputed communications by virtue of his position as a Holdings director, then Moore would also be entitled to these communications by virtue of the Stockholders’ Agreement.
There are still other Delaware cases on this topic and this blog is not intended to be an exegesis on any particular case. For more on the subject, I suggest Cyril Moscow’s article, Director Confidentiality, 74 Law & Contemporary Problems 197 (2008).