What Does Delaware’s Wal-Mart Decision Mean For The Attorney-Client Privilege And Internal Investigations?

The Delaware Supreme Court's decision in Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, No. 614, 2014 Del. LEXIS 336, 2014 WL 3638848 (July 23, 2014), a Section 220 "books and records" case concerning allegations that Wal-Mart's Mexican subsidiary engaged in an illegal bribery scheme, is significant because it formally adopted the Garner doctrine, "which allows stockholders of a corporation to invade the corporation's attorney-client privilege in order to prove fiduciary breaches by those in control of the corporation upon showing good cause." Wal-Mart, 2014 Del. LEXIS 336, at *25. The court upheld the Delaware Court of Chancery's order requiring Wal-Mart to provide the shareholder plaintiff with documents relating to the company's own internal investigation of the allegations, including documents protected by the attorney-client privilege as well as the work product doctrine.

In some respects the Wal-Mart decision is disconcerting for corporate counsel. It suggests that counsel conducting internal investigations of allegations of corporate wrongdoing should bear in mind the possibility that someday their privileged communications, which they assume to be confidential, may be subject to review by a shareholder plaintiff's counsel seeking grounds to sue the corporation's directors and officers. But the Walmart case involved unusual circumstances and should not be read as opening privileged communications by corporate counsel to widespread discovery in most shareholder litigation.

Section 220 of the Delaware General Corporation Law

Section 220 of the Delaware General Corporation Law gives stockholders the right, upon written demand under oath, to inspect the corporation's stock ledger, a list of its stockholders, and its other books and records for any proper purpose. The law defines a "proper purpose" as "a purpose reasonably related to such person's interest as a stockholder." The Delaware Supreme Court has previously held that a stockholder's desire to investigate wrongdoing or mismanagement may constitute a "proper purpose," but the shareholder must show by a preponderance of the evidence that there is a credible basis from which the court can infer that there is possible mismanagement that would warrant further investigation. Seinfeld v. Verizon Communications, Inc., 909 A.2d 117, 121-24 (Del. 2006). The scope of a stockholder's inspection is limited to those books and records that are "necessary and...