Boards Beware: Delaware “Garners” Support for Fiduciary Exception to Attorney-Client Privilege
By: Sabrina M. Hendershot
The attorney-client privilege is among the oldest and most revered privileges for confidential communications. The privilege is necessary to ensure that a client receives competent legal advice by encouraging full disclosure to the lawyer without fear that the lawyer will be compelled to testify against him or her. In 1981, the U.S. Supreme Court held that the privilege was also available for corporations to assert against their shareholders. However, the privilege is not absolute.
In the seminal case of Garner v. Wolfinbarger, the U.S. Court of Appeals for the Fifth Circuit held that shareholders may overcome this privilege upon a showing of “good cause.” Commonly referred to as the Garner exception, the doctrine has been applied to a variety of different fiduciary relationships. However, until the Delaware Supreme Court’s ruling in Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, the exception has never been expanded to allow for shareholders to obtain privileged documents in a pre-litigation Section 220 books and records demand.
While shareholders have the right to search records for a proper purpose, such as the investigation of fraud, Section 220 actions are often criticized as fishing expeditions. Although shareholder litigation serves an important corporate accountability function, there are many other measures that help meet the same end. This Comment analyzes the Delaware Supreme Court’s unprecedented expansion of the Garner exception and argues that it is inconsistent with the spirit and purpose behind the doctrine. This Comment concludes by urging the General Assembly to overrule Wal-Mart or at least limit its holding solely to the most worthy of plenary suits.