Chancery Finds Former Directors Bringing Wrongful Termination Claims Were Not Entitled to all Privileged Communications During Their Board Tenures, and Shifts Some Fees for Inadequate Privilege Logs
SerVaas v. Ford Smart Mobility LLC, C.A. No. 2020-0909-LWW (Del. Ch. Nov. 9, 2021)
With limited exceptions, directors normally have “unfettered” access to corporate information. This decision indicates, however, that the same may not hold true for former directors who do not challenge their removal as directors and who seek documents for reasons unrelated to their prior board service. Here, the Court of Chancery denied a motion to compel by two former directors who challenged the termination of their employment, and who sought in discovery all of the documents the corporation withheld as a privilege from their time as directors.
The Court reasoned that, while the director of a Delaware corporation has a broad right to corporate information, that right is based on directors’ fiduciary duties to manage the company and was “correlative with the duty to protect and preserve the corporation.” The Court emphasized that the purpose of director information rights is not served by allowing former directors access to privileged material to pursue purely individual claims. In this case, the plaintiffs did not claim that (i) they were entitled to a current board seat, (ii) the documents were provided to other board members but withheld from them, (iii) the documents would have allowed them to act as fully informed directors, or (iv) they were suing in a fiduciary capacity. Rather, their claims were rooted in breach of contract, and entirely individual in nature. Therefore, the corporation’s privilege was maintained.
Plaintiffs’ other motion asked the Court for a broad waiver of privilege based on deficiencies in the defendants’ privilege log, which did not include basic information such as sender, recipient, identity of counsel, and the basis for privilege. Defendants’ initial privilege log also withheld the entirety all of the in-house general counsel’s communications. Prior to the hearing, defendants amended their privilege log and productions multiple times to address these deficiencies. They also confirmed to the Court that Delaware counsel was “heavily involved in the privilege review and logging process.” In the circumstances, the Court declined to find that the deficiencies were the result of bad faith, which could result in a broad waiver of privilege. It shifted up to $5,000 in fees, however, and ordered a re-review of logged materials to confirm that nothing else should be produced.Share