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There are many indicia that may contribute to a decision of presence or absence of good cause for disclosure of corporate attorney-client confidences, among them the number of shareholders and the percentage of stock they represent; the bona fides of the shareholders; the nature of the shareholders' claim and whether it is obviously colorable; the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; whether, if the shareholders' claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; whether the communication related to past or to prospective actions; whether the communication is of advice concerning the litigation itself; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons. The court can freely use in camera inspection or oral examination and freely avail itself of protective orders, a familiar device to preserve confidentiality in trade secret and other cases where the impact of revelation may be as great as in revealing a communication with counsel.
Stockholders of First American Life Insurance Company of Alabama (FAL) brought, in the Northern District of Alabama, a class action alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, SEC Rule 10(b)(5), the Investment Company Act of 1940, the Alabama Securities Act and common law fraud, seeking to recover the purchase price which they and others similarly situated paid for their stock in FAL. The defendants are FAL and various of its directors, officers and controlling persons. The plaintiffs also claim that FAL was itself damaged by alleged fraud in the purchase and sale of securities, and, on behalf of FAL, they assert against various individual defendants a derivative action on behalf of the corporation. FAL filed a cross-claim against all other defendants, asserting in its own behalf the rights the plaintiff shareholders had claimed in the derivative aspect of their complaint. R. Richard Schweitzer served as attorney for the corporation in connection with the issuance of the FAL stock here involved. After the transactions sued upon were complete he became its president. On deposition Schweitzer was asked numerous questions concerning advice given by him to the corporation about various aspects of the issuance and sale of the stock and related matters. Other questions went into the content of discussions at meetings attended by him and company officials and information furnished to him by the corporation. All of the questions were related to times at which Schweitzer acted solely as attorney, before he became an officer of the company and before the filing of suit. Objections were made by counsel for the corporation and by Schweitzer himself that the attorney-client privilege barred his revealing both communications to him by the corporation and the advice which he gave to the corporation. The plaintiffs had served a subpoena duces tecum on Schweitzer to bring various documents to the taking of his deposition. Both he and the corporation claimed the privilege with respect to some of the documents. The District Court treated the subpoena as though it were a motion to produce under Rule 34. The District Judge held that the privilege is not available to the corporation as against these plaintiff stockholders. Contemporaneously the District Judge ordered the case transferred to the Southern District of Alabama under 28 U.S.C. § 1404(a). With respect to both orders he entered appropriate findings pursuant to 28 U.S.C. § 1292(b), the interlocutory appeal statute.
Did the district court err in holding that the attorney client privilege was not available to the corporation as against the stockholders?
The court disagreed with the district court as both applicable state and federal law afforded the privilege to corporations, and it was generally favored by public policy. However, existence of exceptions to the privilege in circumstances where injury from disclosure of the communications was lesser than benefit gained from correct disposal of litigation indicated that the privilege should be limited where corporation was charged with acting inimically to stockholder interests. In such cases, privilege was subject to the right of stockholders to show cause why it should not be invoked. The court listed indicia of the presence or absence of good cause, including the number of shareholders challenging the decision and amount of stock they represented.