Delaware Chancery Decision Highlights Need To Protect Privilege In Outside Director Communications

Poyner Spruill LLP

Poyner Spruill LLP

In In re WeWork Litigation, the Delaware Court of Chancery has held that a company’s communications with outside directors are not protected by attorney-client privilege. The directors had used outside email accounts for the communications.

The case has some unusual facts. But it stresses protecting communications with outside directors. In particular, companies should be alert to the potential exposure of confidential corporate communications to outside directors who use their own email accounts.

WeWork is suing SoftBank for alleged breach of a stock purchase agreement. A  discovery dispute arose over documents that SoftBank withheld, claiming attorney-client privilege. The documents at issue were emails to or from SoftBank personnel. The personnel were also Sprint executives. They used their Sprint email accounts. Sprint is not party to the litigation. But some executives were simultaneously employed by both Sprint and SoftBank

For instance, Sprint’s CEO and another Sprint executive at Softbank received legal advice from SoftBank counsel concerning WeWork. WeWork moved to compel production. It argued the emails were not protected by attorney-client privilege since Sprint employees did not have a reasonable expectation of privacy when using their Sprint email accounts. It stressed that Sprint monitored communications on its email systems. The Chancery Court agreed and ordered production.

The Chancellor’s analysis relied on the analytical framework set out in In re Asia Global Crossing, Ltd. Asia Global looked to four factors. First, did the corporation have a policy barring personal use? Second, did it monitor employee email? Third, did it permit third parties access to its email? Fourth, did employees expect monitoring?

Applying these factors, Chancellor Andre G. Bouchard first noted that the Sprint Code of Conduct explicitly provided that employees had no expectation of privacy in emails on work systems. While it did not specifically prohibit email use for personal purposes, it unequivocally preserved Sprint’s right to monitor email.

Secondly, the Chancellor found that Softbank had produced no evidence that Sprint did not monitor the contested emails. He also held that when a company preserves the right to monitor email, as Sprint had, failure to do so did not offset its monitoring rights.

Third, the Chancellor observed the parties made no effort to encrypt their communication. Nor was there any other evidence that either the employees or SoftBank tried to impede Sprint’s access to the documents.

Finally, the Chancellor held that as high ranking Sprint executives, the individuals knew, or should have known, of Sprint’s monitoring policy. Knowledge of that policy nullified any reasonable expectation of privacy.

The decision should set alarm bells ringing for company boards. Outside directors are often executives at other companies. The decision here involved email. But its reasoning could apply to texting or any communication on a third-party device.

Thus, depending on the specific circumstances, outside directors should avoid use of external work email for board business. Many companies have policies like Sprint’s. These would cause privilege protection problems under the Asia Global framework. Instead, companies should:

  • Provide directors company email addresses, and require their use for board issues;
  • Consider using secure portals instead of email;
  • If outside directors must use a third-party email account, mandate the use of emails that are not subject to third-party monitoring.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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