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Special Committees and Protecting Privilege

By Thaddeus J. Malik, David M. Greenwald and Mercedes M. Davis
February 26, 2008

Your company receives an allegation of serious wrongdoing involving a current board member. After an initial review and perhaps a discussion with the chair of your Audit Committee, it is agreed that the matter cannot be dismissed out of hand and should be elevated to the board of directors. After a meeting and discussion by the independent and non-conflicted directors, a decision is made to form a special committee to fully investigate the matter. That committee is formed, retains its own outside advisers, and commences its investigation. During that investigation, the committee interviews employees and reviews internal documents, taking care to maximize the protections afforded by the attorney-client privilege and the work product doctrine as well. After the investigation is completed and the committee has reached its conclusions, it is now time for the committee to present its findings to the remaining directors so that appropriate steps can be taken to respond to any confirmed wrongdoing. The question then becomes how the board can discharge its fiduciary duties without waiving otherwise applicable privileges to the investigation and opening the door to discovery of investigation related materials by the government or by third party litigation adversaries.

Ryan v. Gifford

Two recent unpublished opinions issued by the Delaware Chancery Court shed some light on the analysis, and also offer a cautionary tale. In Ryan v. Gifford, Civ. Action No. 2213-CC, the court specifically addresses the privilege issue in the context of a shareholder derivative action. 2007 WL 4259557 (Del. Ch. Nov. 30, 2007) ('Ryan I'); 2008 WL 43699 (Del. Ch. Jan. 2, 2008) ('Ryan II'). In particular, the court identified several actions that may put privilege in jeopardy.

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