On January 10, 2018, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery declined to compel the production of attorney-client privileged documents under the Garner doctrine in the context of direct breach of fiduciary duty claims brought by former minority shareholders of R.L. Polk & Co. Inc. (“Polk”) against its controlling shareholders in connection with a self-tender. Buttonwood Tree Value Partners, L.P., et al. v. R.L. Polk & Co., Inc., et al., C.A. No. 9250-VCG (Jan. 10, 2018). As discussed in our post regarding a prior decision, the Court denied a motion to dismiss the complaint, which alleges that the self-tender was a self-dealing transaction by the controlling shareholders “as part of an overall scheme to later sell the Company for three times the [s]elf-[t]ender valuation.” In the subsequent course of discovery, plaintiffs moved to compel the production of documents relating to legal advice Polk sought in connection with the sale of the company, the self-tender, and various restructuring options that were considered at the time. The Court declined to compel the production because plaintiffs failed to establish that “the information contained in the privileged documents is both necessary and unavailable from other sources.”
As the Court explained, the Garner exception to the attorney-client privilege “is a judicially created doctrine founded on the recognition that where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show ‘good cause’ why the privilege should not apply.” In evaluating the applicability of the Garner doctrine, among several factors that courts consider, Vice Chancellor Glasscock identified three that Delaware courts have accorded particular significance: “(1) the colorability of the claim; (2) the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; and (3) the apparent necessity or desirability of shareholders having the information and availability of it from other sources.” Of these three, the Court clarified its view that the first two are “gatekeepers,” while the third, applicable when the first two are satisfied, is “a balancing test to see whether the interest in discovery, or that of maintaining the privilege, is paramount.”
Here, the Court explained that its prior decision to decline to grant defendants’ motion to dismiss meant that plaintiffs’ claim is colorable. The Court also held that plaintiffs satisfied the second factor by identifying the documents sought as those related to advice concerning the potential sale of the company and the self-tender. But the Court denied the motion to compel because plaintiffs had not established that the information sought in the privileged communications is not available from other sources and, therefore, the balancing test under the third factor “tips against disclosure of the privileged documents.”
Click here to view Buttonwood Tree Value Partners, L.P. v. R.L. Polk & Co., Inc.