Post by congregatio on Jan 6, 2016 10:14:31 GMT 4
New York Appellate Court Recognizes Exception to Attorney-Client Privilege
The New York Appellate Division, First Department, recognized for the first time a fiduciary exception to the attorney-client privilege. The exception was recognized in connection with a dispute among the managers of an operating company, the law firm for the operating company and the operating company's major investor. The law firm refused to disclose documents to the investor on the basis of the attorney-client privilege. The investor argued that it was entitled to disclosure as an intended beneficiary of the law firm's advice to the operating company's managers.
The court ruled that when management actions are challenged by the owners a fiduciary exception to the attorney-client privilege is available upon a demonstration of "good cause."
For purposes of determining "good cause," the court adopted a multi-factor test formulated by the U.S. Court of Appeals for the Fifth Circuit in the 1970 case Garner v. Wolfinbarger. The court in Garner provided the following non-exclusive list of considerations for determining "good cause:"
the number of shareholders and percentage of stock they represent;
the bona fides of the shareholders;
the nature of the shareholders' claim and whether it is obviously colorable;
the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources;
whether, if the shareholders' claim is of wrongful action by the corporation, it is of a criminal nature, or illegal but not criminal, or of doubtfully legality;
whether the communication relates to past or prospective actions;
whether the communication is of advice concerning the litigation itself;
the extent to which the communication is identified versus the extent to which shareholders are blindly fishing; and
the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.
The court ruled that, in order to properly apply the fiduciary exemption, a comprehensive "communication-specific" analysis must have been conducted by the court.
NAMA Holdings, LLC v. Greenberg Traurig, LLP, Index No. 601054/08, 2015 Slip Op. 07346 (N.Y. App. Div., 1st Dept., Oct. 8, 2015)
The New York Appellate Division, First Department, recognized for the first time a fiduciary exception to the attorney-client privilege. The exception was recognized in connection with a dispute among the managers of an operating company, the law firm for the operating company and the operating company's major investor. The law firm refused to disclose documents to the investor on the basis of the attorney-client privilege. The investor argued that it was entitled to disclosure as an intended beneficiary of the law firm's advice to the operating company's managers.
The court ruled that when management actions are challenged by the owners a fiduciary exception to the attorney-client privilege is available upon a demonstration of "good cause."
For purposes of determining "good cause," the court adopted a multi-factor test formulated by the U.S. Court of Appeals for the Fifth Circuit in the 1970 case Garner v. Wolfinbarger. The court in Garner provided the following non-exclusive list of considerations for determining "good cause:"
the number of shareholders and percentage of stock they represent;
the bona fides of the shareholders;
the nature of the shareholders' claim and whether it is obviously colorable;
the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources;
whether, if the shareholders' claim is of wrongful action by the corporation, it is of a criminal nature, or illegal but not criminal, or of doubtfully legality;
whether the communication relates to past or prospective actions;
whether the communication is of advice concerning the litigation itself;
the extent to which the communication is identified versus the extent to which shareholders are blindly fishing; and
the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.
The court ruled that, in order to properly apply the fiduciary exemption, a comprehensive "communication-specific" analysis must have been conducted by the court.
NAMA Holdings, LLC v. Greenberg Traurig, LLP, Index No. 601054/08, 2015 Slip Op. 07346 (N.Y. App. Div., 1st Dept., Oct. 8, 2015)