On November 30, 2007, a Delaware state trial court ruled that any attorney-client privilege had been waived as to outside counsel’s report of an internal investigation conducted at the behest of a Special Committee of the Board of Directors when the substance of the report had been presented orally by the Special Committee to the company’s entire Board of Directors. The court also held that this partial waiver operated as a complete waiver for all communications between outside counsel and the Special Committee relating to the investigation and final report.
The Special Committee had been formed by the company’s Board of Directors in response to litigation challenging the company’s allegedly backdated stock options granted to certain key executives and naming several Board members as individual defendants. The Special Committee hired outside counsel which conducted an internal investigation and submitted a final report to the Special Committee. The Committee then disclosed details of the report in an oral presentation to the full Board of Directors in a meeting attended by the individual defendants and their attorneys (whose law firm also represented the company before the SEC). The court found that the Special Committee was “the client” for privilege purposes and had waived any privilege by making disclosures to the individual director defendants “whose interests are not common with the client, precluding application of the common interest exception to protect the disclosed communications.” The court found that the Committee’s relationship to the individual director defendants was “more akin to one adversarial in nature” even though the internal investigation had exculpated them of any wrongdoing. Accordingly, the court ordered the investigative report turned over to the plaintiffs and directed that outside counsel’s underlying interview notes be submitted for in camera inspection to determine if any redaction was needed to protect opinion work product.
While there is ample case law supporting a different result, the Delaware decision serves as a useful reminder that care must be taken in deciding how and to whom the results of an internal investigation should be reported. For instance, the outcome in this case might have changed if the individual defendant directors (not to mention their counsel) had been excluded from the presentation to the full Board. The Delaware decision can be found at Ryan v. Gifford, 2007 WL 4259557 (Del.Ch. 2007).