May 17, 2023
One glaring disagreement among state courts involves former corporate directors' right to access documents they possessed when they served as directors. Common sense might lead one to think that directors enjoyed access when they were loyally serving a corporation, but should be denied access if they become adverse to that corporation.
In Hyde Park Venture v. FairXchange, LLC, C.A. No. 2022-0344-JTL, 2023 Del. Ch. LEXIS 59 (Del. Ch. Mar. 9, 2023), the Delaware Court of Chancery strenuously defended Delaware's longstanding contrary view. After noting that "[s]ince 1987, Delaware law has treated the corporation and the members of its board of directors as joint clients for purposes of privileged material created during a director's tenure," the court found that "the corporation cannot invoke the privilege against the investor [which had appointed a director who "monitor[ed] corporate performance," and who as "a human has only one brain"] for materials created during the director's" tenure. Id. at *3-4. The court then described "[t]hree recognized methods . . . by which a corporation can alter these default rules": (1) by contract, "through a confidentiality agreement"; (2) by forming a board committee "that excludes the director"; or (3) by the corporation "put[ting] the director on notice of [the] fact" that "a sufficient adversity of interests has arisen." Id. at *4.
The Delaware Chancery Court acknowledged that federal court decisions and the prestigious Restatement (Third) of the Law Governing Lawyers (Am. L. Inst. 2000) take a different view — which the court candidly conceded was "the majority rule." Id. at *57 & n.8. This discovery-related distinction rests on the difference between Delaware's and most other states' fundamental disagreement about the nature of a corporate client's identity — whether directors are a corporation's lawyer's joint client or merely agents of the corporate entity client.