The courts continue to erode the confidentiality of internal investigations.  We discussed this issue last winter, when the corporate defendants in Halliburton were ordered to produce documents relating to certain internal audits and investigations.  (See First Alert, Feb. 2, 2015.)  That was in federal court for the District of Columbia, and involved an investigation not conducted by attorneys.  Now, and more alarmingly, Delaware state courts are using a “fiduciary exception” to the attorney-client privilege to allowshareholders to access documents, emails and results of internal investigations conducted by attorneys, including their privileged advice.

The “fiduciary exception” arose from the Fifth Circuit inGarner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970).  It determines when shareholders may gain access to emails and documents, even if those emails would, under other circumstances, be afforded protection under the attorney-client privilege.  After nearly 50 years, it appears to have found new life in Delaware.

In Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Fund Ibew, 95 A.3d 1264 (Del. 2014), the Delaware Supreme Court adopted the test for the first time and forced Wal-Mart to produce all “relevant data,” including emails from the General Counsel, relating to an internal investigation on the grounds that there was a colorable claim of bribery.  More recently, the Delaware Chancery Court expanded on Wal-Mart to force a corporation, pursuant to a shareholder’s Section 220 request to examine the corporation’s books and records, to turn over all communications authored or received by any Board member concerning any inquiry or investigation into the company’s trading practices, including emails from the corporation’s attorneys. (See In re Lululemon Athletica Inc. 220 Litig., No. 9039-VCP, 2015 Del.Ch. LEXIS 127 [Del. Ch. April 30, 2015].)  The court inLululemon found it significant that the communications requested by the shareholders related to the “underlying events and conduct” that gave rise to the plaintiff shareholders’ litigation, as opposed to communications regarding the litigation itself.  

These two rulings present troubling questions for in-house attorneys and outside counsel trying to decide whether their emails to others within the company will remain privileged in the face of shareholder litigation.  The line between “underlying events and conduct” and “present litigation” is blurry at best.  Though little may be done to insulate privilege completely from these sorts of attacks, corporate directors, officers, and attorneys, both in-house and outside, should be sensitive to the possibility that communications relating to internal investigations, even privileged communications, could be accessed by the corporation’s shareholders in conjunction with ongoing and related litigation.