Wolfe and Pittenger on Privilege Ruling in Ryan v. Gifford

In Ryan v. Gifford*, 2007 Del Ch. LEXIS 168 (Nov. 30, 2007), the Delaware Court of Chancery examines the extent to which a plaintiff stockholder may gain access by way of discovery to purportedly privileged communications by and among the subject corporation, a Special Committee of the corporation's board of directors, and the committee's independent counsel in connection with the committee's investigation of alleged misconduct. Among other things, the Court of Chancery found that the attorney-client privilege had been waived as to the entire subject matter of the committee's investigation because the Committee disclosed its report and certain of its privileged communications to the full board, including directors who were the subject of the investigation and their individual counsel. The decision highlights the need for board committees and their counsel to consider carefully to whom and under what circumstances privileged committee communications are disclosed so as to limit, where appropriate, the possibility that privilege will be deemed waived.
The authors write: Of broader interest perhaps is the Court of Chancery’s holding in connection with the plaintiffs’ motion to compel production from Maxim, the Special Committee, Orrick (counsel to the Special Committee), and LECG Corporation relating to the Special Committee’s investigation. In that aspect of the motion, plaintiffs sought an order compelling production of (1) all communications between Orrick and the Special Committee occurring during the course of the Special Committee investigation, (2) all communications between Orrick and Maxim relating to Orrick’s presentation of the final report of its findings to the Special Committee and the full Maxim board, and (3) all documents withheld by Orrick on work-product grounds, including interview notes and Orrick’s forensic analysis of Maxim’s computer system.
In connection with communications between Orrick and the Special Committee relating
to the Special Committee investigation, the Special Committee argued that the attorney-client privilege clearly applied and protected such communications from disclosure to the plaintiff. Maxim argued in turn that its communications with Orrick were privileged for the same reasons as advanced by the Special Committee in that Maxim’s interests were aligned with those of the Special Committee and its counsel and were thus equally entitled to protection from disclosure pursuant to the “common interest” or “joint privilege” doctrine.
Taking up the latter claim first, the Court posited that a privileged relationship existed as between the Special Committee and Orrick, and further assumed (without deciding) the existence of a joint or common interest between the Special Committee and Maxim for privilege purposes. It concluded nonetheless that, even assuming the existence of such a joint privilege, the plaintiffs, as shareholders of Maxim, the direct beneficiary of the privilege, had demonstrated “good cause” for gaining access to such the company’s privileged information and thus were entitled under Garner v. Wolfinbarger, to inspect Maxim’s presumably privileged communications with the committee and its counsel. In specifically reviewing the relevant factors identified in Garner, the Court found that the plaintiff shareholders had demonstrated: (1) the existence of a colorable claim against the directors; (2) the unavailability of the information sought from other sources due to the lack of a written report from the Special Committee, the inability to depose certain witnesses due to privilege , and the unavailability of other witnesses who had invoked the 5th Amendment; and (3) the information sought was identified with sufficient specificity. The Court deemed it particularly significant that the information at issue, information that was at the heart of the plaintiffs’ claim, was unavailable elsewhere. It therefore ordered the communications between Maxim and Orrick to be produced. [footnotes omitted]