A&O Shearman | M&A and Corporate Governance Litigation Blog | Delaware Court Of Chancery Ruling Provides Guidance On Attorney-Client Privilege Protection For Draft Stockholder Communications <br >  
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  • Delaware Court Of Chancery Ruling Provides Guidance On Attorney-Client Privilege Protection For Draft Stockholder Communications 

    At a recent hearing, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery provided guidance on the application of the attorney-client privilege to draft stockholder communications in the context of a stockholder class action involving claims for breach of fiduciary duty against the directors of Windstream Holdings, Inc. (“Windstream”).  Doppelt v. Windstream Holdings, Inc., C.A. No. 10629-VCS (Del. Ch. September 11, 2017) (Transcript).  During discovery, plaintiffs moved to compel the production of drafts of various documents related to communications with stockholders—including talking points, FAQs, and mailings drafted by the company in conjunction with proxy communication firms—which were withheld by defendants on the grounds of attorney-client privilege.  The Court determined that such drafts were not likely to be privileged in their entirety, but could be redacted to the extent they reflect legal advice from counsel, such as comments intended “to ensure that the company is complying with its legal obligations.”   
    Plaintiffs alleged that the proxy issued in connection with a spin-off from, and reverse stock split of, Windstream was materially misleading.  Plaintiffs challenged defendants’ assertion of attorney-client privilege over drafts of stockholder communications drafted with the aid of proxy advisors and communication consultants, arguing that the drafts were created with a “business purpose to collect votes and to communicate with investors.”  Defendants invoked the protections of Jedwab v. MGM Grand Hotels, Inc., No. CIV.A. 8077, 1986 WL 3426 (Del. Ch. Mar. 20, 1986), which held that drafts of required regulatory disclosures—such as those filed with the SEC—are fully protected by the attorney-client privilege.  
    The Court held that although Jedwab “recognizes that there are state and federal disclosure regimes that have very specific requirements where it can be assumed that legal counsel will be involved in formulating those disclosures for legal compliance,” that does not mean that every stockholder communication is subject to Jedwab.  Here, the Court found that the communications at issue were not “proxy-like documents . . . subject to a legal disclosure regime.”  Nevertheless, the Court held that comments from counsel reflecting legal advice—e.g., input to ensure consistency and compliance with disclosure obligations—were protected by the attorney-client privilege and subject to redaction, notwithstanding the overall business purpose of the communications.    
    Separately, the Court rejected plaintiffs’ attempt to invoke what it referred to as the “narrow and exacting” Garner exception, which in certain circumstances involving fiduciary duty claims permits stockholders to obtain otherwise privileged materials from the company upon a showing of good cause.  See Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970).  The Court concluded that plaintiffs did not demonstrate that any document sought over a privilege objection “would be helpful in overcoming the knowledge shortfall that they’ve identified,” and therefore plaintiffs failed to show good cause with the requisite specificity.    

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