Good Fences Make Good Neighbors and Preserve Attorney-Client Privilege in the Boardroom: A Word of Caution for Boards Navigating Potential Disputes Among Directors or With Funds They Manage
The boardroom frequently presents attorney-client privilege and work product protection issues. The Delaware Court of Chancery’s recent decision in Hyde Park Venture Partners Fund III, LP v. FairXchange, LLC, C.A. No. 2022-0344-JTL (Del. Ch. March 9, 2023), provides a reminder of the importance of vigilance in considering when and how to limit a director’s access to privileged materials in circumstances where directors’ interests may diverge – particularly where directors manage, or are affiliated with, investment funds owning stock of the Company.
Special Committee Counsel Prohibited from “Advocating” as Both Counsel and Witness in Shareholder Derivative Trial
The Delaware Court of Chancery in In re Straight Path recently applied the state’s professional conduct rules to prohibit Special Committee counsel from both appearing as a fact witness at trial and representing former Special Committee members in the same trial. In so doing, the Court offered its most recent consideration of Delaware Rules of Professional Conduct 3.7(a), which precludes a lawyer in most circumstances from “advocat[ing] at a trial in which the lawyer is likely to be a necessary witness.”
Another Musk-Twitter Sideshow Reminds That Which Email Address You Use Matters
The headline-generating Twitter-Musk saga has caused the Court’s rapid-fire issuance of more than 30 letters and memorandum opinions. Others have already been discussed on this blog. Another among them is notable for the Court’s consideration of whether Elon Musk waived privilege by sending and receiving otherwise privileged communications about the Twitter acquisition using his Tesla and SpaceX email addresses. This brief decision is an important reminder that yes, it does matter which email address you use to communicate about otherwise privileged matters. (more…)
The Disclosure Process Defense to Securities Fraud Claims, Part II: Protecting the Attorney-Client Privilege
This article addresses potential privilege issues that arise from the integral role that in-house counsel typically plays in a company’s disclosure process.
When faced with allegations of securities fraud, a defendant’s reliance on a robust and well-functioning disclosure process can be a powerful tool to negate scienter, i.e., fraudulent intent. Part one of this article discussed the theory behind the disclosure process defense as well as key prophylactic steps that can be taken to strengthen the defense for when it is needed. This Part Two addresses potential privilege issues that arise from the integral role that in-house counsel typically plays in a company’s disclosure process. First, it distinguishes the superficially similar advice of counsel defense, which requires waiver of the attorney-client privilege. Then it identifies important steps that corporate counsel can take to protect the privilege when a disclosure process defense is asserted. (more…)
A Reminder That Former Directors Can Often – But Not Always – Access Their Former Company’s Privileged Records
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. (more…)
Court of Chancery Provides Reminder That Privilege Is Not Absolute
Last week, Vice Chancellor Joseph R. Slights III issued a ruling in Tornetta v. Musk that serves as a reminder that the corporate attorney-client privilege is not absolute. Deciding a discovery motion in a stockholder derivative suit challenging the 2018 compensation deal for Tesla CEO Elon Musk, the Court ordered the defendants to produce a limited set of documents that reflected communications between Musk and in-house counsel, though it rejected the plaintiff’s request for additional communications between in-house counsel, the Board’s Compensation Committee, and outside advisors. The decision serves as a reminder to company counsel, both internal and external, that their communications may not always be protected from stockholder plaintiffs in shareholder derivative actions.
