Ryan v. Gifford, 2007 WL 4259557 (Del.Ch. 2007) (not reported)
Brief Summary
When a special committee formed to investigate backdated stock options at Maxim Integrated Products Inc. shared its counsel’s report with Maxim’s full board of directors—including directors individually subject to backdating claims — the attorney-client privilege was waived.
Complete Summary
Law firm Orrick Herrington & Sutcliffe LLP (“Orrick”) was counsel for a special board committee at Maxim, which was appointed to investigate allegedly improper backdating of stock options. In the portion of the opinion summarized here, plaintiff shareholders in the present derivative/securities fraud litigation sought production of Orrick’s communications with both the special committee and the Maxim board. Maxim and the special committee asserted attorney-client privilege and work product protection.
The court ordered production based on plaintiffs’ showing of good cause and based on a waiver of privilege. First, assuming (without holding) that Maxim had the power to assert privilege based on the special committee’s attorney-client relationship with Orrick, the court noted that plaintiffs had shown good cause for producing the communications between Maxim and Orrick in a derivative litigation context. Good cause was based on three factors: “(1) a colorable claim; (2) the unavailability of information from other sources . . . and (3) the specificity with which the information [was] identified.” Id. at *3.
Second, the court held that the special committee had waived privilege by sharing the report with the Maxim board members/directors who were potentially individually liable for backdating violations. Those directors did not have common interest with the special committee (or Maxim) and arguably had adverse interests. In fact, lawyers at another firm who were retained to defend the individual directors had viewed the report. The court then held that waiver of the information contained in the report operated as a complete waiver for all communications regarding the subject matter.
The court deferred ruling on documents potentially protected by work product pending in camera review.
Significance of Opinion
Although this is not a formally reported decision (which makes it of little or no precedental value), its implications are clear and important. Special committees need to make sure that their reports are kept away from potentially adverse individuals—even if those individuals are corporate officers or directors.
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