Ryan v. Gifford: Board of Directors Waives Attorney-Client Privilege by Reporting on Internal Investigation at a Board Meeting

February 8, 2008

The Delaware Chancery Court recently issued an opinion that could impact the rights of companies who retain outside counsel to conduct internal investigations. In Ryan v. Gifford, Civ. Action No. 2213-CC (Del. Ch. Nov. 30, 2007), the court held that when a special committee formed by a company’s board of directors shared the report of its outside counsel’s special investigation with the full board, which included individual board members who were under investigation for alleged wrongdoing, it waived any claim to attorney-client privilege which may have attached to communications with the outside counsel.

In Ryan, the board of directors of Maxim Integrated Products, Inc., a defendant in a derivative suit, formed a special committee to investigate plaintiffs’ allegations that Maxim had backdated stock options. The special committee retained outside counsel to conduct an independent investigation, then made a detailed oral report to the full board regarding counsel’s findings. Board members who had been named as individual defendants in the derivative suit were present at the meeting.

The plaintiffs moved to compel Maxim, its outside counsel and the special committee to produce all communications related to the internal investigation and the oral presentation to the board. The court found that, even if a privilege had applied to communications between Maxim, the committee and its outside counsel, the plaintiffs had made a showing of good cause that vitiated the privilege. Good cause existed because the information contained in the report was important to plaintiffs’ claims, and the information was not available from other sources.

More significantly, the court also held that in making the oral presentation to the board, the special committee had waived the attorney-client privilege attaching to its communications with outside counsel because board members who were individual defendants were present at the meeting. The court found that the relationship between the individual defendant board members and the special committee was “adversarial in nature,” and that the privilege did not therefore survive. The court concluded that the waiver as to the information contained in the report constituted a full waiver as to all related subject matter.

McGuireWoods has extensive experience conducting independent investigations for companies that are involved in litigation or are anticipating litigation, and in advising clients regarding issues related to the attorney-client privilege and work product doctrine. If you have questions regarding any of these areas, please contact one of the attorneys listed.