Chancery Addresses “At Issue” Exception to Attorney/Client Privilege

In re Comverge, Inc., Shareholders Litigation, C.A. No. 7368-VCP (Del. Ch. April 10, 2013).

Issue Presented: Whether the attorney-client privilege was a defense to a motion to compel documents.

Short Answer:  Yes, under the circumstances of this case.

Summary of Analysis
The court observed that under Court of Chancery Rule 26(b)(1), the “parties may obtain discovery regarding any matter, not privileged, which is relevant to the subject matter involved in the pending action . . ..  A party asserting a privilege has the burden of proof to show that the privilege is applicable to the communication.”  See footnote 3.  Rule 502 of the Delaware Rules of Evidence codifies the lawyer-client privilege and the five elements of that rule.

Communication is confidential if it is not “intended to be disclosed to third persons other than those to whom disclosure is made in furtherance of the rendition of professional legal services to the client or those reasonably necessary for the transmission of the communication.”  See footnote 5.  The lawyer-client privilege as described in DRE 502 is not absolute and can be restricted or denied entirely when a party places an otherwise privileged communication “at issue” in the litigation.  See footnote 7.

This “at issue exception” to the lawyer-client privilege is based on waiver and fairness to prevent a party from using it at both an offensive and defensive weapon.

A party places the lawyer-client communication “at issue” and waives the lawyer-client privilege when:

(1) a party injects the privileged communications themselves into the litigation, or (2) a party injects an issue into the litigation, the truthful resolution of which requires an examination of confidential communications. See footnote 9.

Court’s Reasoning

The court reasoned that the examination of privileged communications was not required for the truthful resolution of this litigation because the defendants merely seek to rely on the fact that they sought and obtained legal advice – - rather than arguing that they relied on the substance of the privileged communications to prove that the board was fully informed.

Therefore, the court explained that the defendants:  “did not inequitably use attorney-client privilege as a sword or inject a privilege-laden issue into the litigation.”  See footnote 21 and related text.

The court referred to cases where the defense was that legal counsel was obtained and that the existence of legal advice was material to the question of whether the board acted with due care, but the substance of that advice was not inquired into.  See, e.g., Hollinger International, Inc. v. Black, 844 A.2d 1022 (Del. Ch. 2004), aff’d, 872 A.2d 559 (Del. 2005) (referring to the dismissal of a breach of fiduciary duty claim because the board had adequately informed themselves by seeking the advice of counsel even though the exact content of that advice was not disclosed).

Another reason the court rejected the argument that the attorney-client privilege was waived due to the “at issue” exception, was because the information disclosed regarding any privileged communications was summary in nature and comparable to what would be disclosed in a privilege log.

Redaction of Board Minutes

The court conducted an in camera review of redacted board minutes to determine whether they were protected by the attorney-client privilege.

The court recited the well-settled Delaware law that:  “the presence of a lawyer in a business meeting called to consider a problem that has legal implications does not itself shield the communications that occur at that meeting from discovery.  Rather, it is communications to a lawyer by or on behalf of a client for the purpose of the rendition of legal services or lawyers’ statements constituting legal service that are protected.”  See footnotes 42 and 43.  Likewise the attorney-client privilege protects legal advice as opposed to business or personal advice.  See footnote 44.

However, communications that contain an inseparable, combination of business and legal advice may be protected by the attorney-client privilege.  See footnote 45.  Moreover, if it is a “close call” whether a communication reflected in a document contains a mixture of legal and business matters and is more closely related to legal advice as opposed to business advice, the party asserting the privilege will be given the benefit of the doubt.  See footnote 46 and related text.