In Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), the U.S. Court of Appeals for the Fifth Circuit recognized a fiduciary exception to the attorney-client privilege “where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.” Thus, upon a showing of “good cause,” Garner allows stockholders to invade the corporation’s attorney-client privilege to prove fiduciary-duty breaches of directors, officers or those in control of the corporation. The Fifth Circuit listed the following factors relevant to show “good cause” under the Garner exception to the attorney-client privilege: “the number of shareholders and the percentage of stock they represent; the bona fides of the shareholders; the nature of the shareholders’ claim and whether it is obviously colorable; the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; whether, if the shareholders’ claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; whether the communication is of advice concerning the litigation itself; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.”
The Supreme Court of Delaware has twice “tacitly endorsed, in dicta,” the Garner exception to the attorney-client privilege. First, in Zirn v. VLI, 621 A.2d 773, 781 (Del. 1993), the Supreme Court recognized that the attorney-client privilege is “not absolute and, if the legal advice relates to a matter which becomes the subject of a suit by a shareholder against the corporation, the invocation of privilege may be restricted or denied entirely.” Second, in Espinoza v. Hewlett-Packard, 32 A.3d 365, 374 (Del. 2011), the Supreme Court was presented with an issue under the Garner doctrine in a Delaware General Corporation Law Section 220 action, but did not reach the issue, because the “necessary and essential” inquiry to determine the proper scope of the inspection in a Section 220 action “logically precede[d] [as a predicate question] any privilege or work-product inquiry.” The Delaware Court of Chancery has adopted the Garner doctrine as a valid exception to the attorney-client privilege in at least three Section 220 actions. In its recent decision, Wal-Mart Stores v. Indiana Electrical Workers Pension Trust Fund IBEW, No. 614, 2013 (Del. July 23, 2014) (Holland, J.), the Supreme Court of Delaware expressly adopted the Garner doctrine exception to the attorney-client privilege in both plenary stockholder actions and books-and-records actions under DGCL Section 220. In Wal-Mart Stores, the Supreme Court found “good cause” to apply the Garner exception to the attorney-client privilege in the Section 220 action because essential information to the stockholder’s proper purpose, which concerned how Wal-Mart’s counsel and its business unit accused in the alleged bribery scandal conducted the investigation of its own alleged bribes, was not available from nonprivileged sources.
