Can Corporate Counsel’s Privileged Communications Be Withheld From Directors/Shareholders?

The short answer is yes, but it depends on the facts and circumstances of the particular situation. In a recent case decided by the Massachusetts Supreme Judicial Court, the Court addressed for the first time when a corporation’ s counsel could assert the attorney- client privilege and the work-product doctrine to prevent the disclosure of documents to certain directors or shareholders. The documents were obtained by counsel in the course of its representation of the corporation. The case name is Chambers, et al. v. Gold Medal Bakery, Inc. et al.

The case involved a dispute concerning the Gold Medal bakery business of Fall River, which was formed by two brothers who each owned fifty percent of two closely-held corporations (collectively, “ Gold Medal” ). Gold Medal, in turn, developed into major suppliers of wholesale bakery businesses in New England. The parties to the litigation were split along family lines, with each side representing the legacy of one of the brothers.

There had been a history of litigation, including claims that one side had been frozen out of the business and denied bank information about the company, which the plaintiffs asserted was because the defendants wanted to maintain secrecy to conceal wrongdoing. The defendants asserted the plaintiff was seeking a buy-out and any information they were seeking was only to advance their personal goal of maximizing the value of their shares.

At one point, the parties reached a settlement, and the present case arises, in part, out of an alleged violation of the settlement agreement. The plaintiffs sought in the course of the litigation access to certain documents in possession of the corporation’s counsel.

While the Court recognized the general rule that all directors of a corporation should be entitled to equal access to legal information furnished to other board members, the general proposition is not a per se guarantee. The Court found that “ [t]he principle that directors have a right to equal access to advice [and documents] of corporate counsel provided to the corporation is based on the assumption that the interest of directors is not adverse to the interest of a corporation on a given issue.” That is, the corporation is entitled to receive legal advice in confidence without sharing it with the directors whose interests are adverse to the corporation.

The Court found that based on the narrow facts of the case before it, the plaintiffs’ interests were in fact adverse to Gold Medal for the purpose of attorney-client privilege and work-product doctrine as the information requested was generated in anticipation of or related to the present and prior litigation.

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Rudolph Friedmann LLP has handled many disputes involving directors and shareholders of closely-held corporations and other such business entities, including family disputes. Jim Rudolph was lead counsel in one of the most public of such disputes involving Legal Sea Foods and the Berkowitz family, as well as another high profile case involving celebrity chef Todd English. Should you have any questions involving issues concerning your rights as a minority (or majority) shareholder, a director, or on behalf of the business itself, feel free to call us for a consultation.

Jim Singer is a partner in Rudolph Friedmann’ s litigation department and has been co-counsel with Jim Rudolph on several of his shareholder dispute cases.