A recent short Order of the Court of Chancery reiterated one of the limitations on the right of a director to receive corporate information. In the latest installment of the internecine imbroglio in the litigation captioned Schnatter v. Papa John’s International, Inc., C.A. No. 2018-0542-AGB, Order, (Del. Ch. Feb. 25, 2019), the Court explained that DGCL Section 141(c) allows a board to act “openly with the knowledge of the excluded director to appoint a special committee, in which case communications with the counsel would be properly protected, at least to the extent necessary for the committee’s ongoing work”. (internal quotes modified)(citing Kalisman v. Friedman, 2013 WL 1668205, at *4 (Del. Ch. Apr. 17, 2013)). The Kalisman case was highlighted on these pages.
A prior Chancery decision in the Papa John’s case, that also addressed the right of directors to corporate documents, was highlighted on these pages.
The Court in its Order reasoned that there was no evidence presented in the context of the motion to compel that Schnatter ever regarded the law firm for the Special Committee as the Company’s counsel or the Board’s counsel. Nor was there a reasonable basis for Schnatter to regard that law firm as representing his interests, including his interests as a director.
Schnatter was barred from obtaining privileged communications for a very narrow period of time in anticipation of the contemplated formation of a Special Committee pursuant to DGCL Section 141(c). Schnatter was excluded in order for the Special Committee to investigate certain matters concerning him.