On March 28, 2019, a federal court in the Southern District of New York issued a decision addressing the standard for determining whether communications between counsel to a company’s board of directors and individual members of the board who represent one of the company’s major investors are shielded from disclosure by the attorney-client privilege. The case, Argos Holdings Inc. and PetSmart Inc. v. Wilmington Trust, N.A, is of special interest to private fund managers that appoint principals as directors to their portfolio company boards.

Directors of this type are sometimes known as “constituency directors” because they serve at the behest of, and owe separate duties to, the investment firm that has appointed them to the portfolio company board. As discussed further below, a key lesson of Argos Holdings is that the portfolio company may be unable to claim legal privilege over board counsel’s communications with the constituency directors unless either (i) the portfolio company clarifies that the constituency directors are receiving board counsel’s communications in their capacity as directors rather than as principals of the appointing investment firm, or (ii) the portfolio company and the investment firm establish “common interest” between them.

Parties and Background 

Plaintiff Argos was the parent of plaintiff PetSmart. The principal investor in Argos was a private equity sponsor (the “PE Sponsor”). The constituency directors at issue were three principals of the PE Sponsor who served as members of the Argos board of directors. Defendant Wilmington Trust acted as administrative agent under the credit agreement by which the PE Sponsor financed the 2015 purchase of its indirect interest in PetSmart.

In 2017, PetSmart acquired Chewy, Inc. Two law firms, Simpson Thacher and Kirkland & Ellis, advised plaintiffs PetSmart and Argos on the acquisition of Chewy and on the plaintiffs’ subsequent internal transfers of Chewy stock. Plaintiffs filed suit in 2018 to compel defendant Wilmington Trust to release liens on Chewy’s assets and the transferred Chewy stock, and to release Chewy’s guarantees of PetSmart’s debt. Defendant Wilmington Trust counterclaimed that the Chewy acquisition and subsequent stock transfers had violated the credit agreement and applicable law. 

The discovery phase of the litigation led to a dispute over the plaintiffs’ assertion of the attorney-client privilege as the basis for not producing certain documents. Specifically, the plaintiffs asserted privilege over 13 sets of documents that reflected transactionrelated communications between the law firms and the three PE Sponsor principals who served as Argos directors. The plaintiffs primarily argued that while the PE Sponsor admittedly was not a client of the law firms, the constituency directors had received the communications in their capacity as members of the law firms’ client, the Argos board.

Notably, the plaintiffs did not contend that the communications were protected by a common interest between plaintiffs and the PE Sponsor, in which event the plaintiffs could have withheld the documents by asserting the common interest doctrine. That doctrine shields attorney-client communications from disclosure where “two or more clients separately retain counsel to advise them on matters of common legal interest” and reveal attorney-client communications to one another “for the purpose of furthering a common legal interest.”

The Court's Decision 

Judge Denise Cote largely ruled in favor of defendant Wilmington Trust, compelling the plaintiffs to produce 10 of the 13 sets of the allegedly privileged documents in question. The court found that the plaintiffs had failed to demonstrate that these documents represented communications between the law firms as counsel to the Argos board and the PE Sponsor principals in their roles as Argos directors. In particular, the judge rejected the plaintiffs’ argument that because the three constituency directors clearly had a privileged relationship with the law firms in their capacities as Argos board members, it did not matter that the directors also had a relationship with the PE Sponsor whose interests they represented on the Argos board. 

Judge Cote rejected the idea that the constituency directors’ relationship with the PE Sponsor was irrelevant to the privilege analysis. Instead, given the constituency directors' relationship with the PE Sponsor and the fact that the communications at issue went only to those three directors, it was incumbent on Argos to show that the constituency directors were receiving the law firms’ communications in connection with seeking or obtaining advice in their capacities as Argos directors. The opinion highlighted plaintiffs’ failure to make such a showing, pointing out that:

i. the affidavits submitted by Kirkland and one of the three constituency directors were conclusory, and thus insufficient to support the assertion of privilege as to each of the law firms and each constituency director who sent or received the communications under review;

ii. there was no explanation of why the communications were addressed only to the constituency directors rather than the entire Argos board;

iii. no basis was provided for the constituency directors’ purported understanding that the communications were privileged; and

iv. no assertion was made as to whether the communications to the constituency directors were inaccessible to other PE Sponsor personnel (notably, some communications were sent to the constituency directors’ PE Sponsor email addresses and stored on that firm’s servers).

In addition, the opinion interpreted Argos’s failure to present any “document, protocol or training designed to protect the privilege” as undermining Argos’s assertion of privilege. Based on all of the above, Judge Cote upheld the plaintiffs’ privilege designations only with respect to one set of communications from the law firms that were sent to the entire Argos board and two sets of communications from the law firms that clearly identified the constituency directors in their Argos board capacities.

Judge Cote also declined to credit another of the plaintiffs’ arguments in support of shielding the law firms’ communications from disclosure to defendant Wilmington Trust. This was the plaintiffs’ assertion that the capacity in which the constituency directors received the communications—whether as Argos board members or PE Sponsor principals—was in fact irrelevant based on the allegedly settled doctrine that where there is no conflict of interest, a shareholder in a portfolio company is entitled to assert privilege as to a law firm’s communications with the shareholder’s representatives on the portfolio company board. In rejecting the argument that the constituency directors’ privilege extended by right to the PE Sponsor, Judge Cote stated that the weight of authority holds that “shareholders are not entitled to corporate documents protected by attorney-client privilege absent litigation between the shareholders and the company and a showing of good cause.”


The Argos Holdings opinion teaches that where an investment manager has constituency directors on a portfolio company board and those constituency directors have obligations to the investment manager, the manager should install protocols to protect the privilege of communications between the board’s lawyers and the constituency directors. Here, Argos would have been well-served by: 

i. absent a common interest agreement (see below), establishing guidelines to prohibit the constituency directors from sharing with the PE Sponsor any communications between the constituency directors and the attorneys representing the Argos board;

ii. training the constituency directors to receive communications from the Argos board attorneys at the directors’ private email addresses rather than over the PE Sponsor’s server; and

iii. ensuring that the lawyers representing the Argos board were sensitized to privilege issues in the constituency director context, including the need to take additional steps to designate communications to constituency directors as intended to be protected by an applicable privilege.

If an investment manager with portfolio company board representation wishes to protect definitively the privilege that shields communications between board counsel and constituency directors, the investment manager seriously should consider entering into a common interest agreement with the portfolio company. If Argos and the PE Sponsor had entered into a common interest agreement—of a type duly recognized in the pertinent jurisdiction—prior to the communications at issue, there would have been no concern about the capacity in which the PE Sponsor’s constituency directors had received the law firms’ communications.