The Delaware Chancery Court recently provided guidance on analyzing claims of attorney-client privilege in the context of a shareholder derivative suit where the corporation's general counsel assumed multiple, and at times potentially conflicting, fiduciary roles. According to the court, the availability of the privilege turns on the role the lawyer played at the time he generated or received a given communication.
Peter DeLiso ("DeLiso") was general counsel and Chairman of the Board of Directors of Microcell Corporation ("Microcell"). DeLiso also served as general counsel of LCC International, Inc. ("LCC"), the majority shareholder of Microcell. The plaintiffs, minority shareholders of Microcell, brought a derivative suit against the members of the LCC-controlled board of Microcell and LCC, alleging several breaches of fiduciary duties. The plaintiffs moved to compel production of documents related to the events underlying the lawsuit, many of which were withheld by the defendants on the grounds of attorney-client privilege. The disputed documents were communications made between DeLiso and representatives of both Microcell and LCC. Although the Chancery Court appointed a Special Master to recommend the disposition of the plaintiffs' motion, at the parties' request, it first resolved certain threshold privilege-related issues.
The Chancery Court noted that the attorney-client privilege protects "confidential communication[s] made between a client and his lawyer . . . for the purpose of facilitating the rendition of legal services to the client." The court thus stated that the defendants' claims of privilege must be analyzed based on the capacity in which DeLiso was serving when he generated or received each communication. The court then categorized the documents according to the three roles played by DeLiso, and provided preliminary guidance on the availability of a privilege claim under each category:
- Communications to or from DeLiso solely in his non-lawyer capacity as Chairman of Microcell's Board of Directors (except for communications containing legal advice to DeLiso as client) would not be subject to claims of privilege.
- Confidential communications between DeLiso, acting solely in his capacity as counsel to LCC, and the directors and/or officers of LCC, would be protected from disclosure to the plaintiffs, who are shareholders of Microcell, not LLC.
- Confidential communications between DeLiso, acting solely in his capacity as counsel to Microcell, and Microcell's directors and/or officers, generally would be subject to the privilege. The court held, however, that the plaintiffs may defeat this claim of privilege upon a showing of good cause, and that DeLiso's conflicting roles as general counsel to both Microcell and LCC is a factor that may be taken into account in determining whether such cause exists.
The court recognized that the Special Master may not be able to divide the universe of disputed documents neatly into the above three categories because "[c]onceivably there may be documents that do not disclose in any clear-cut way which of Mr. DeLiso's three hats he was wearing at the time he generated or received the communication in question." Any ambiguity created by DeLiso's three roles, the court held, should be resolved against the claim of privilege. As the court observed, "it was the defendants who . . . created the problem, by placing Mr. DeLiso in multiple -- and potentially conflicting -- fiduciary roles. Having created that conflict and its resulting ambiguity, and having been in a position to prevent the conflict from arising in the first place, the defendants, as fiduciaries for Microcell's minority stockholders, cannot be allowed to benefit from the ambiguity by asserting a privilege that might not otherwise have been available." *
Grimes v. LCC Int'l, Inc., No. Civ. A. 16957, 1999 WL 252381 (Del. Ch. April 23, 1999).