In a November 9 letter decision, Vice Chancellor Will denied a motion filed by a company’s former directors to obtain its privileged information. The decision highlights an exception to the rules governing a former director’s right to access their former company’s privileged information: access will be denied where the former director is seeking the information to pursue an individual damages claim against the company.
“Directors of Delaware corporations possess broad information rights.” Often, therefore, a corporation cannot “assert attorney-client privilege ‘to deny a director access to legal advice furnished to the board during the director’s tenure.’” This correlates with a director’s duties to the corporation: A director needs access to a company’s privileged information to fulfill her duties of loyalty and care, and in receiving that information also has an obligation to protect it.
As with most rules, however, there are exceptions. The seminal Kalisman case recognized three: (1) an existing agreement among the parties; (2) formation of a special committee to exclude the director from advice obtained by others; and (3) sufficient adversity between the director and the corporation that he could no longer believe he was a client of the board’s counsel. In the recent SerVaas case, all agreed that none of these exceptions applied.
The defendants in the SerVaas case nevertheless prevailed in blocking the former directors’ access. This was because the plaintiffs were not seeking the documents in an action to further the pertinent entity’s interests, nor those of its stockholders. Rather, the plaintiffs were pursuing damages in individual breach of contract actions and thus had “no reason to believe they were joint clients of company counsel with regard to the issues underlying those claims.” The Court therefore reasoned that granting access would be “inconsistent with the purpose of director information rights” and denied the motion.
The decision serves as a reminder both of directors’ broad access rights and of the limitations on those rights in certain contexts. When facing a dispute, or potential dispute, with any member of a corporate board, all involved should be mindful of these principles and consider them with the benefit of counsel.
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