The Delaware Court of Chancery rejected an attempt to discover privileged materials

Plaintiffs, Richard L. Salberg, M.D. and David Pinkoski, filed a Verified Complaint Pursuant to 8 Del C. § 220 (the “Complaint”) to compel Defendant, Genworth Financial, Inc. (“Genworth” or the “Company”), to produce unredacted copies of documents that Genworth claims are subject to the attorney-client privilege. These same Plaintiffs, represented by the same counsel, previously filed derivative claims in this Court alleging breaches of fiduciary duties by Genworth’s board of directors and several of its officers (the “Derivative Action”). The derivative claims are still pending…

Plaintiffs do not dispute that the Company likely has produced all documents responsive to their demand. The difficulty, of course, is that the documents are of little value to Plaintiffs given their heavily redacted state. To address this impasse, Plaintiffs invoke the well-known Garner fiduciary exception to the attorney-client privilege to argue that Genworth must produce unredacted documents.

The dispute between the parties, therefore, raises only the narrow legal issue of whether the Garner exception applies in these circumstances. This is my decision after “trial” on a stipulated paper record. For the reasons that follow, I conclude that Garner does not aid the Plaintiffs in this instance to
overcome Genworth’s invocation of the attorney-client privilege…

Given that Plaintiff’s demand for books and records seeks information directly related to separate claims they are actively litigating against the parties who have invoked the privilege, I am satisfied that they have failed to show good cause, at least for now, to overcome the privilege.

The court analysed the Garner factors

In addition to the codified exceptions to the attorney-client privilege, Delaware recognizes “an oft-invoked exception [that] applies in suits by minority shareholders.” This exception—the celebrated “Garner fiduciary exception”— recognizes that “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 ‘good cause’ why the privilege should not apply.” Our Supreme Court has adopted the Garner fiduciary exception in both plenary actions and Section 220 actions.

In keeping with the important policy rationales that justify the attorney-client privilege, “the Garner fiduciary exception to the attorney-client privilege is narrow, exacting, and intended to be very difficult to satisfy.”  The plaintiff stockholder must carry a burden of showing “good cause” to overcome the privilege.

Result  

The unique circumstances of this case do not warrant unredacted production of privileged communications under the Garner fiduciary exception. Plaintiffs cannot achieve via Section 220 what they could not achieve via discovery in the Derivative Action. Striking a “balance between [the parties’] legitimate competing interests” in this instance requires that Plaintiffs’ Section 220 demand be rejected. Judgment will be entered for Defendants.

(Mike Frisch)