1. What is the attorney-client privilege?

2. Can a corporation protect its documents by asserting attorney-client privilege?

3. What did the shareholder (IBEW) have to prove to have access to the privileged documents?

In April of 2012, the New York Times ran a story about bribery at WalMex, a Mexican subsidiary of Wal-Mart. The article described a scheme of illegal bribery payments made to Mexican officials at the direction of WalMex CEO, Eduardo Castro-Wright, between 2002 and 2005. The article stated that WalMex received benefits such as zoning changes and rapid and favorable processing of permits and licenses for new stores in exchange for bribes. The NYT article stated that Wal-Mart executives were aware of the conduct no later than September of 2005. A stockholder of Wal-Mart, the Electrical Workers Pension Trust Fund IBEW (IBEW), demanded to inspect the books and records of the corporation with the purpose of investigating the bribery allegations and breaches of fiduciary duty by Wal-Mart or WalMex executives. Wal-Mart produced approximately 3,000 documents, including documents regarding its compliance with the Foreign Corrupt Practices Act and minutes and materials referencing the WalMex Allegations. Wal-Mart declined to provide documents that it believed were not necessary and essential to the stated purposes or that were protected by the attorneyclient privilege and work-product doctrine.

The Court of Chancery held that Wal-Mart had to produce these additional documents because they were “necessary and essential” to achieve a “proper purpose,” as required by Section 220 of the Delaware Code. According to Section 220, documents are “necessary and essential” if they address the “crux of the shareholder’s purpose” and if that information “is unavailable from another source.”

JUDICIAL OPINION

HOLLAND, J.… In Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), the Fifth Circuit Court of Appeals recognized a fiduciary exception to the attorney-client privilege when it held:

The attorney-client privilege still has viability for the corporate client. The corporation is not barred from asserting it merely because those demanding information enjoy the status of stockholders. But 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 cause why it should not be invoked in the particular instance. Id. at 1103-04.

The Fifth Circuit then listed several factors that should be considered when evaluating whether the plaintiff has met its “good cause” burden. Thus, the Garner holding allows stockholders of a corporation to invade the corporation’s attorneyclient privilege in order to prove fiduciary breaches by those in control of the corporation upon showing good cause. This Court has, on two occasions, tacitly endorsed, in dicta, the Garner doctrine. Two decades ago, in Zirn v. VLI Corp., this Court acknowledged that the attorney-client privilege “is not absolute and, if the legal advice relates to a matter which becomes the subject of a suit by a shareholder against the corporation, the invocation of privilege may be restricted or denied entirely.”

The attorney-client privilege can be traced back to Roman times and is the oldest privilege recognized by Anglo-American jurisprudence. Delaware courts have agreed with the United States Supreme Court’s characterization of the attorney-client privilege as “critical” to “encourage[ing] full and frank communication between attorneys and their clients and thereby promot[ing] broader public interests in the observance of law and administration of justice,” including where the client is a corporation. Accordingly, the Garner doctrine fiduciary exception to the attorney-client ……………….