A Delaware Court Addresses A Privilege Issue Implicating Corporate Governance

October 30, 2019

Delaware law very generously provides for corporate directors’ access to privileged communications. However, in some situations directors lose their access attempts.

In Gilmore v. Turvo, Inc., C.A. No. 2019-0472-JRS, 2019 Del. Ch. LEXIS 316 (Del. Ch. Aug. 19, 2019) (unpublished opinion), several Turvo directors met on May 21, 2019 to investigate another director’s (also the CEO) expense account misconduct. Those directors retained Latham & Watkins to advise them. The directors adopted a resolution retaining Latham & Watkins “effective as of May 10, 2019” – explaining that “the resolution’s retroactive language was intended to allow Turvo to pay [Latham’s] legal fees.” Id. at *3. The ousted director/CEO pointed to Delaware law in seeking privileged communications between the other directors and Latham between May 10 and May 21. The court denied the effort, explaining that “it was entirely within [the board’s] business judgment to determine that the company should pay the Preferred Directors’ fees by deeming Latham to have been working on behalf of the company prior to May 21.” Id. at *7.

Corporations governed by Delaware law should always consider directors’ normal ability to access privileged communications.