Delaware Supreme Court Permits Stockholders to Overcome Corporation’s Attorney-Client Privilege for “Good Cause”

On July 23, 2014, the Delaware Supreme Court in Wal-Mart Stores, Inc. v. Indiana Elec. Workers Pension Trust Fund IBEW held that plaintiff stockholders, who make a showing of good cause, can inspect documents concerning a corporation’s internal investigation even if those documents were otherwise covered by the attorney-client privilege and even if the plaintiffs’ inspection demands are made in Section 220 litigation. In so ruling, the Supreme Court expressly adopted the “fiduciary” exception to the attorney-client privilege first announced in a Fifth Circuit appellate decision dating from 1970, Garner v. Wolfinbarger. The Court also ruled that Garner does not apply to efforts to protect non-opinion work product, which should be analyzed under Court of Chancery Rule 26(b)(3).

The Garner Exception to the Attorney-Client Privilege -

Over forty years ago, the Fifth Circuit in Garner held that a stockholder, upon a showing of good cause, could overcome a corporation’s attorney-client privilege when suing the corporation for acting “inimically” to the stockholder’s interests. The plaintiffs in Garner had asserted class claims (under the Securities Act of 1933 and the Securities Exchange Act of 1934, among other statutes), all arising out of a corporation’s allegedly fraudulent public offering of stock; the corporation, in turn, had asserted derivative cross-claims against various of its directors, officers and control persons. Discovery quickly focused on the corporation’s president, who at the time of the offering had served as its lawyer. The plaintiffs sought, and the defendants resisted, discovery aimed at the legal advice the then-lawyer had given the corporation about the securities offering. The district court held that the corporation could not invoke the attorney-client privilege. On an interlocutory appeal, the Fifth Circuit vacated the order and remanded, holding that while the corporation could invoke the privilege, the privilege was neither “inflexibly absolute” nor “totally unavailable.”

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