Under what is called the "fiduciary exception," a fiduciary's beneficiary sometimes may access otherwise privileged communications between the fiduciary and its lawyer – based on the law's artificial identification of the beneficiary as the fiduciary's lawyer's true "client." A branch of this fiduciary exception entitled the Garner doctrine occasionally allows shareholders to rely on this "fiduciary exception" to access otherwise privileged communications between: (1) corporate management whom the shareholders elect; and (2) the corporation's lawyers who advise that management. Significantly, in 2014, the Delaware Supreme Court acknowledged and applied the Garner doctrine in ordering Wal-Mart to produce investigation-related privileged communications to several Wal-Mart shareholders (labor unions). Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW, 95 A.3d 1264 (Del. 2014).
In Drachman v. BioDelivery Sciences International, Inc., C.A. No. 2019-0728-LWW, 2021 Del. Ch. LEXIS 184 (Del. Ch. Aug. 25, 2021), the court acknowledged the Garner doctrine's viability in Delaware, but found it inapplicable for now in the scenario the court addressed. The court noted that "the plaintiffs are attempting to employ Garner to short-circuit the discovery process," and that "it would be inequitable to invade that privilege at the outset of discovery before the plaintiffs have exhausted other avenues." Id. at *14-15.
Although defendants in this case dodged the Garner bullet, corporations and their lawyers should remember the risk that sometimes their corporate client's shareholders may be deemed to be those lawyers' real "clients," and (as the Drachman court put it) "invade the corporation's privilege." Id. at *8-9.
Published November 12, 2021.
