Anyone interested in the most complete and recent explanation of the Garner exception to the attorney-client privilege needs to read the Delaware Court of Chancery’s ruling in Buttonwood Tree Value Partners, L.P. et al. v. R.L. Polk & Co., Inc., et al., C.A. No. 9250-VCG (Del. Ch. Jan. 10, 2018).

This letter ruling addresses a motion to compel production of communications that would otherwise be protected by the attorney-client privilege. In particular, the motion to compel was based on the Garner exception to the general rule that attorney-client privileged communications need not be produced during discovery.

Background:  The factual background involves derivative claims for breach of fiduciary duty in connection with a self-tender.  More detailed facts involving the underlying claims in this suit were highlighted in a synopsis of the prior Chancery decision in this matter on these pages.

Key Legal Principles:  The court recited the doctrinal underpinning and public policy reasons for Delaware Rule of Evidence 502(b) which codifies the attorney-client privilege, which stands in contrast to the bulk of the Rules of Evidence which are designed to provide for disclosure of relevant facts in a search for the truth.  Delaware recognizes the Garner “exception to the attorney-client privilege exception” to the general rule that relevant facts must be disclosed.

The Garner exception is based on the balancing of:  (i) the purpose of the attorney-client privilege that encourages open communication with counsel and client; with (ii)  the right of the stockholder to understand what advice was given to fiduciaries who are charged with breaching their duties.

There are nine factors that are generally considered in order for the court to determine whether to apply the Garner exception, but three in particular are given greater significance:  (1) The colorability of the claim; (2) The extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; (3) The apparent necessity or desirability of the shareholders having the information, and availability of it from other sources.  (citing Salberg v. Genworth Fin., Inc., 2017 WL 3499807 at *5 (Del. Ch. July 27, 2017)). The Salberg case, also a very useful and thorough explanation of the Garner exception, from last year, was highlighted on these pages.

The Delaware Supreme Court had described the Garner exception as “narrow, exacting, and intended to be very difficult to satisfy.” See Wal-Mart Stores, Inc., 95 A.3d at 1278 (that decision was previously highlighted on these pages).

The court in this decision determined that the first two factors were satisfied but they were only “gatekeeper criteria.” The third factor was not satisfied in this case based on the court’s finding that the same information could have been obtained through depositions.

The court also explained why the “crime-fraud exception” to the attorney-client privilege did not apply. See footnote 29. See Rule of Evidence 502(d)(1) for codification of the crime-fraud exception to the work-product doctrine.

The court also noted that the Garner factors overlap with the required showing under Rule 26(b)(3) pursuant to the work-product doctrine.