December 21, 2021

Delaware Court Limits Former Directors' Access to Privileged Information

You've Reached Your
Free Article Limit This Month
Register for free to get unlimited access to all OnPractice content.
Register Now

Delaware's Chancery Court recently blocked two former directors from obtaining privileged communications between a corporation and its counsel in the context of the former directors' pursuit of personal claims against the entity.

Delaware has consistently held a director's access to information is "essentially unfettered," e.g. Kalisman v. Friedman (Del. Ch. Apr. 17, 2013). In SerVaas v. Ford Smart Mobility LLC (Del. Ch. Nov. 9, 2021), Vice Chancellor Lori W. Will noted three exceptions: (i) a contract limiting access; (ii) the existence of a special committee, of which the director is not a member, and which retains separate counsel; and (iii) and where "sufficient adversity exists between the director and the [entity] such that the director could no longer have a reasonable expectation that he was a client of the board's counsel." Op. at 6.

The SerVaas plaintiffs claimed they were wrongfully terminated shortly before deferred compensation rights were scheduled to vest, and sought discovery of all privileged documents from when they were directors. Explaining that "[a] director's right to information is ‘correlative with his duty to protect and preserve the corporation,'" the Court applied the third exception and held that granting plaintiffs access "to pursue personal breach of contract claims would be inconsistent with the purpose of director information rights." Op. at 7. The Court did not address whether "adversity" is determined as of the time of the director's service, or as of when the demand for access is made.

Ballard Spahr can help Delaware entities minimize the risk present or former directors who are adverse to the entity will invade the entity's attorney-client relationship. For assistance and more information, please contact our attorneys.

ALM expressly disclaims any express or implied warranty regarding the OnPractice Content, including any implied warranty that the OnPractice Content is accurate, has been corrected or is otherwise free from errors.

More From Ballard Spahr

New York Restricts Automated Decision Making in Employment

By Timothy Dickens Ballard Spahr August 29 , 2022

Businesses operating in New York City should be aware of a local law addressing the use of automated employment screening and decision-making tools coming into effect on January 1, 2023.

Status Update: Federal Contractor Vaccine Mandate Injunction Narrowed

By Lila A. Sevener Ballard Spahr August 29 , 2022

On August 26, 2022, the United States Court of Appeals for the Eleventh Circuit narrowed the nationwide injunction of Executive Order 14042, which requires federal contractors and employees who work on or in connection with a covered federal contract, or share a workplace with another employee who works on or in connection with such contracts, to be fully vaccinated against COVID-19.

Unions Cannot Force OSHA to Issue Permanent COVID Standard

By Shannon D. Farmer Ballard Spahr August 26 , 2022

On August 26, 2022, the U.S. Court of Appeals for the District of Columbia Circuit turned back efforts by a group of unions seeking to force the Occupational Safety and Health Administration (OSHA) to quickly issue a permanent rule establishing protections for healthcare workers from COVID-19.

More From Securities Litigation

FINRA Files Amendments to Proposed Rule Change That Will Allow Remote Inspections

By William B. Mack Greenberg Traurig January 25 , 2023

Last summer, the Financial Regulatory Authority (FINRA) proposed a rule change to its supervision rule (FINRA Rule 3110) to allow member firms to conduct remote inspections of some or all branch offices and locations.

Judge Tosses First Amendment Defense In Yuga Labs V. Ryder Ripps

By Mioko C. Tajika Ingram Yuzek Gainen Carroll & Bertolotti January 24 , 2023

On December 16, 2022, a federal district judge in California denied artist Ryder Ripps’s and his partner’s anti-SLAPP motion and motion to dismiss in a closely monitored action filed against them by Yuga Labs, Inc. (“Yuga”), the creator behind the monumentally successful Bored Ape Yacht Club (“BAYC”) NFTs.

SEC Proposes to Establish a New Best Execution Standard

By William B. Mack Greenberg Traurig January 20 , 2023

On Dec. 14, 2022, Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC), released a statement announcing a proposal to establish an SEC rule setting forth a best execution standard for broker-dealers.

Featured Stories