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Despite a bank’s claim that hundreds of documents sought in a shareholders’ class action in Utah are protected by the attorney-client privilege, a Manhattan Supreme Court judge has ruled that plaintiffs are entitled to most of the documents under the fiduciary exception to the privilege. Acting Justice Charles J. Tejada rejected the argument of First Security Corp. and its counsel, New York-based Wachtell, Lipton, Rosen & Katz, that the lack of New York authority for applying the fiduciary exception in suits that are not derivative actions on behalf of the company itself should bar its application in this case, Matter of Stenovich, 102331/01. Leland Stenovich, a shareholder who leads a class of plaintiffs, sued several of the officers and directors of First Security, and sought the documents related to the 2000 merger of First Security, once Utah’s largest banking company, with the San Francisco-based Wells Fargo & Co. Wachtell Lipton was First Security’s counsel during negotiations with Zions Bancorporation, another Utah-based banking giant whose shareholders voted down a merger with First Security, and then Wells Fargo, which quickly made a deal for $2.7 billion after the Zions shareholders’ rejection. Stenovich claims in his suit in state court in Salt Lake County, Utah, that First Security’s directors breached their fiduciary duties to the shareholders by agreeing to the merger with Wells Fargo for an inadequate price. Stenovich came to the New York courts for a subpoena to compel Wachtell Lipton to produce documents. Wachtell Lipton, at the direction of its Utah client, responded with a privilege log listing more than 640 documents that it contended were protected from disclosure by the attorney-client privilege and the attorney work product doctrine. Justice Tejada found that scores of the communications between First Security’s board of directors and Wachtell Lipton concerning the details of the merger negotiations should not be withheld from the disgruntled shareholders. He cited the fiduciary exception to the attorney-client privilege, which was first recognized by a federal appellate court in a shareholder derivative suit. The court in Garner v. Wolfinbarger, 430 F2d 1093, held that a corporation’s right to assert the attorney-client privilege against its shareholders was subject to the shareholders’ rights as the beneficiaries of management’s consultations with counsel. “[W]hen a fiduciary retains an attorney to advise him or her in the exercise of his or her fiduciary responsibilities, his or her communications with that attorney are not absolutely protected from inquiry by the beneficiaries for whom the fiduciary performs,” the judge wrote. DOCUMENTS RELEVANT After a review of the disputed documents, Tejada said he found that many that had been withheld concerned the specific merger negotiations. The documents were relevant and “may be the only evidence available that would address whether [the First Security directors] were acting in furtherance of their own benefit as [the petitioning shareholders] allege,” he said. The judge found that the fiduciary exception applied to documents dated before April 9, 2000, the date the First Security board voted to approve the merger with Wells Fargo. The exception did not apply, the judge added, to documents containing legal advice rendered after the merger. The bulk of the documents were found to be subject to disclosure on another ground after Tejada found they were not protected by the attorney work product doctrine. He said his review found that most of the documents were designed to serve more than one purpose, that is, some business-related matters, and did not constitute material prepared principally to assist in anticipated or ongoing litigation. The petitioning shareholder class was represented by Benjamin Y. Kaufman, Art Leahy and Trisha McCormick of New York-based Milberg Weiss Bershad Hynes & Lerach. Noah B. Novogrodsky of Howard, Rice, Nemerovski, Canady, Falk & Rabkin in San Francisco appeared for the First Security directors. Michael A. Charish of Wachtell Lipton appeared for the firm.

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