Garner v. Wolfenbarger
Citation and Court
430 F.2d 1093 (5th Cir. 1970), United States Court of Appeals for the Fifth Circuit
Facts
Shareholders of a corporation brought a derivative suit against corporate officers and directors, alleging fraud and breach of fiduciary duty. In discovery, shareholders sought to compel production of communications between the corporation and its attorneys, which the corporation claimed were protected by the attorney-client privilege. The shareholders argued that, as beneficial owners of the corporation, they should have access to those communications.
Issue
Whether shareholders bringing a derivative suit on behalf of a corporation may pierce the corporation’s attorney-client privilege to obtain communications relevant to the shareholders’ claim that management breached its fiduciary duty to the corporation.
Holding
The Fifth Circuit held that in shareholder derivative litigation, the attorney-client privilege is not absolute, and courts may permit shareholders to pierce the privilege upon a showing of good cause, weighing the shareholders’ need for the communications against the interests served by the privilege.
Rule / Doctrine
The attorney-client privilege normally protects communications between a corporation and its counsel. However, in shareholder derivative suits, because the shareholders seek to vindicate the corporation’s own rights and the attorneys may have advised management in the commission of the alleged wrong, the privilege may yield upon a showing of good cause. Relevant factors include the nature of the shareholders’ claim, the adequacy of other means to obtain the information, and the relationship between the legal advice and the alleged breach of duty.
Significance
Garner v. Wolfenbarger is the leading case establishing that the attorney-client privilege in the corporate context is not impenetrable in shareholder derivative litigation, and that courts have equitable power to require disclosure upon a proper showing. It is widely taught in professional responsibility courses addressing the complexities of organizational representation.