Do Directors of a Board Have Access to the Company’s Privileged Materials?

In an article I wrote last month on attorney-client privilege, I discussed the potential for its abuse at the hands of unscrupulous lawyers attempting to impede discovery by framing nonprivileged materials as privileged. In a business setting, such as a board of directors meeting, for instance, the company may try to use counsel’s presence in a board meeting to argue that the content discussed at the meeting is privileged, even when the communication during the meeting does not satisfy the attorney-client privilege’s requirements. This example assumes a situation involving a dispute between the company and a third party. But what happens when a dispute is between or among directors of the same company? Can the company use the attorney-client privilege to shield corporate materials, including any attorney-client privileged materials against a director?

•  Shareholder disputes often implicate a director’s right to the company’s privileged materials.         

In many business divorce cases involving close corporations (or closely held corporations), a shareholder who brings an action is often also a director of the company. The shareholder/director who brought the lawsuit frequently faces resistance from the other shareholders/directors and company about the limits of his access to the privileged materials. Compared to his rights as a shareholder (who has limited rights of inspection), however, a director has almost unlimited rights to access all company materials, including all privileged materials. With two exceptions limiting a director’s access—a situation involving specific agreements by shareholders (e.g., carve-out provision in the shareholders’ agreement) that limits a shareholder/director’s access or a dispute over the director’s access to the privileged communications between counsel and a special committee formed by the board to deal with the director’s demand or action—the director has unlimited access to all privileged materials. In other words, a dissident director who brings a lawsuit against the controlling shareholders/directors (or the company) has equal access to the privileged materials as the controlling shareholders/directors.

• Delaware follows joint client approach for directors.