Last month,the Delaware Supreme Court issued a ruling in Wal-Mart Stores Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, No. 614, 2013 (Del. July 23, 2014), concerning the scope of discovery available to shareholders making books-and-records requests under Section 220 of the Delaware General Corporation Law. The decision, authored by Justice Holland, affirms the Court of Chancery's order requiring Wal-Mart to produce a variety of documents in response to a shareholder's Section 220 request. Most significantly, the decision affirms the Court of Chancery's finding that even documents protected by attorney-client privilege or attorney work-product doctrine may be subject to production to a shareholder under Section 220, pursuant to the exception to the privilege articulated in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970) (the "Garner doctrine"). That principle, granting shareholders access to otherwise privileged documents upon a showing of good cause in order to prove fiduciary breaches, had never been expressly applied by the Delaware Supreme Court in either a plenary proceeding or a Section 220 action.
As background, this case arose in the wake of press coverage regarding allegations of a bribery scheme in violation of the Foreign Corrupt Practices Act ("FCPA"), involving Wal-Mart's Mexican subsidiary. The plaintiff, IBEW, sent a letter to Wal-Mart requesting inspection of a broad category of documents relating to these allegations. Section 220 gives shareholders the right to inspect corporate books and records for any proper purpose. Under Delaware law, this extends to all documents that are "necessary and essential" to that proper purpose. The claimed purposes of the request made by IBEW were to investigate (1) potential mismanagement, (2) possible breaches of fiduciary duties, and (3) whether a pre-suit demand on the board would be futile as part of a derivate suit.
The Court's decision affirms a Chancery Court order requiring Wal-Mart to produce various categories of documents in response to IBEW's Section 220 demand, finding them all "necessary and essential" to the purposes listed above - including officer-level documents that may have never been seen by the Board of Directors and documents covering a broad seven-year time span. However, it is the Court's express endorsement of the Garner doctrine in the Section 220 context that may have the most significant implications for litigation in Delaware going forward. The Court found that (1) the privileged documents requested were under Section 220 "necessary and essential" to IBEW's purposes, and (2) "good cause" existed (under Garner) to require the privileged documents to be produced. The Court's "good cause" inquiry focused on findings that IBEW had a credible, colorable claim that mismanagement may have occurred, based in part on Wal-Mart's public statements regarding its concerns about the conduct of its Mexican subsidiary, and that where part of the alleged wrongdoing relates to the way an investigation was conducted, relevant documents may be difficult to access without applying the Garner exception.
Justice Holland recognized that the Garner doctrine is a "narrow [and] exacting" exception to the attorney client privilege that is "intended to be very difficult to satisfy." Accordingly, the extent to which plaintiffs will be able to use this decision and the Garner doctrine to obtain in a Section 220 proceeding privileged documents outside of the specific factual circumstances that were present in Wal-Mart remains to be seen.