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Jan 2015
14
January 14, 2015

Chipping Away at Attorney-Client Privilege: Delaware Ruling Gives Stockholders Easier Access to Corporate Documents


Dating back to Roman law, attorney-client privilege has been a doctrine that protects the confidentiality of communications between an attorney and his or her client. Under the privilege, an attorney cannot disclose information shared by the client in the course of seeking legal advice. But it’s not an absolute privilege.

A notable exception to the attorney-client privilege took shape in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970). The court in Garner said that when stockholders sue a corporation, they should have an opportunity to show why the attorney-client privilege should not protect the corporation’s communications. People now refer to this rule as the Garner doctrine or the “fiduciary exception.” Numerous courts have adopted the Garner doctrine since 1970.

Now Garner has come to Delaware.

In Wal-Mart v. Indiana Electrical Workers Pension Trust Fund IBEW, 95 A.3d 1264 (Del. 2014), stockholders sued the giant retailer, claiming Wal-Mart failed to properly investigate briberies involving its Mexican subsidiary. News spread that Wal-Mart had knowingly included some of the bribery suspects on its internal investigation team. Naturally, the suspects cleared themselves of all wrongdoing. The internal investigation — or lack thereof — caused Wal-Mart’s global general counsel to resign.

In the midst of the mess, the IBEW — an electrician union’s pension fund — wanted answers. Under Delaware Code Section 220, stockholders are allowed to inspect corporate records as long as they have a proper purpose. So the IBEW requested information from Wal-Mart regarding the bribery investigation, whether a cover-up took place and what exactly the Wal-Mart board knew. Wal-Mart gave the IBEW some heavily redacted documents but held back others based on the attorney-client privilege. The IBEW filed suit to force Wal-Mart to produce more documents.

The Delaware Supreme Court took the case on appeal and adopted the Garner doctrine. The court decided that the IBEW had a proper purpose for requesting the documents and that the documents were “necessary and essential” to that purpose. The court affirmed the lower court’s ruling that ordered Wal-Mart to hand over the following: officer and lower-level documents; documents spanning a seven-year period and extending beyond the bribery timeframe; documents from internal “disaster recovery” tapes; any documents related to the claims known to exist by the Office of the General Counsel; and contents of related documents protected by the attorney-client privilege. The list included hard copies and electronic documents.

All of this adds up to one thing: Delaware corporate documents are now less protected from stockholders’ eyes than in the past. Corporate officers, directors and attorneys should now draft documents and emails knowing that stockholders may one day see them. Another easy tip: if your corporate officers are suspected of wrongdoing, don’t hire them to investigate.

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