How Privileged Are Your Privileged Communications?

According to the court, when a corporation is sued by its stockholders on charges of acting inimically to stockholder interests, “protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.” Id. at 1103-04.

Garner has been almost universally adopted among federal courts, and by many state courts, including Delaware and New York, although notably not California. It has been expanded beyond derivative suits to cover a wide variety of fiduciary relationships, including ERISA administrators and beneficiaries, estates and their beneficiaries, trustees and trust beneficiaries, banks acting as fiduciaries in real estate transactions, and joint ventures. Importantly, most federal courts have found that Garner applies to non-derivative direct shareholder actions, although a few courts, most notably the Ninth Circuit, have refused to do so, and others have held such actions to a higher standard than derivative cases.

Courts have also placed limits on the fiduciary exception. Universally, courts have found that Garner does not apply to attorney work product, exceptions to which are governed by the higher standard of Federal Rule of Civil Procedure's 26(b)(3)'s “undue hardship” test. Some courts have also limited Garner's application to plaintiffs who were shareholders at the time the privileged communications at issue were made, reasoning that only such plaintiffs were the intended beneficiaries of the trust and so only they should benefit from the fiduciary exception. However, the real hurdle for plaintiffs in a shareholder action for receiving the benefit of the fiduciary exception is the establishment of what Garner called “good cause” for piercing the privilege.

Establishing Good Cause: The Nine ' Garner Factors '

The Garner court set forth nine non-exclusive factors to determine whether “good cause” for piercing the privilege exists. Although courts may consider other indicia of good cause, almost all limit their analysis to these nine. The nine “Garner factors” are:

1. The number of shareholders and the percentage of stock they represent;
2. The bona fides of the shareholders;
3. The nature of the shareholders' claim and whether it is obviously colorable;
4. The apparent necessity or desirability of the shareholders having the information and the availability of it from other sources;
5. Whether, if the shareholders' claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality;
6. Whether the communication related to past or to prospective actions;
7. Whether the communication is of advice concerning the litigation itself;
8. The extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; and
9. The risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.

The burden is on the plaintiff to establish each of these factors. The plaintiff need not prove the existence of each one of these factors to establish good cause; Garner simply states that the presence of these factors “may contribute” to a finding of good cause. In practice, the first four factors have proven to be by far the biggest “contributors” to good-cause findings and will therefore be discussed in more detail.

The Number of Shareholders Represented

While the basic premise behind this factor is clear ' the greater the percentage of stock owned by the plaintiff class the more likely a finding of good cause ' the exact location where ownership changes from militating against a finding of good cause to militating in favor of it is unclear. Unsurprisingly, courts have found that ownership of a “substantial majority” of shares by the plaintiff class is evidence that good cause exists. At the other end, courts have found that ownership of 2% or less of a corporation's stock is evidence that good cause does not exist, and in at least one case, a court, discussed below, has actually found this to be dispositive. There is little case law in between these two extremes, although courts have found seemingly low ownership numbers to favor good cause in the case of closely held corporations.

The Bona Fides of the Shareholder-Plaintiffs

The Garner court did not define “bona fides,” but appears to have intended to ensure that plaintiffs were bringing their suit in good faith rather than to harass management or as a strike suit. In the years since, however, this factor has come almost exclusively to focus on whether or not plaintiffs are suing derivatively on behalf of a corporation. Although the vast majority of courts allow plaintiffs in non-derivative suits to invoke the fiduciary exception, these courts have held that because such plaintiffs are seeking compensation for themselves rather than on behalf of a corporation, the nature of their actions weighs against a finding of good cause. Some courts even go so far as to say that the fact that a suit is non-derivative weighs strongly against a finding of good cause.

Colorability of the Claim

In determining whether a claim is colorable, most courts simply look to whether it has survived a motion to dismiss. Surviving a motion to dismiss (or summary judgment) is never dispositive, but it does bolster a finding of good cause. By contrast, if a claim has not yet survived a motion to dismiss, this weighs strongly against piercing the privilege. Although unusual, some courts, including in a decision discussed below, have looked directly at the evidence to determine if a claim is colorable.

Necessity and Availability Of the Information Sought

This factor actually encompasses two separate issues: the relevancy of the documents or testimony sought to the plaintiffs' case and its availability from other sources, with the latter being perhaps the most important issue in the entire good cause calculus.

As to relevancy, if the information that the plaintiff seeks is highly relevant to important issues in his case, then it weighs towards a finding of good cause; if it relates to issues that are not particularly important to his case, then it weighs against. Plaintiff can also show relevance by pointing to a particular purpose he intends to use information for, such as the cross-examination of a specific witness.

As to availability, not only does the existence of other possible sources for the information sought weigh against a finding of good cause, but it generally will lead the court to deny the plaintiff's motion to pierce the privilege altogether. The most common alternative sources of information courts point to in denying Garner motions are depositions and interrogatories of company directors and executives, although the existence of non-privileged documents and circumstantial evidence has also been cited. That such alternatives may be more expensive and inconvenient to the plaintiff is irrelevant to the Garner analysis.

Other Factors

Most of the other factors are rarely examined in depth or given much weight. If plaintiff's claim involves acts that are clearly criminal, then this weighs in favor of disclosure, but this will rarely be the case in shareholder acts. Courts have not found that plaintiffs are engaging in “fishing expeditions” so long as they specifically identify the documents or information sought and their reason for doing so. Finally, possible revelations of trade secrets are unlikely to present problems as they can be avoided with the imposition of a protective order. The exception to this rule is when the revelations would likely prejudice the defendant in a separate lawsuit.

Two other factors, however, while rare, can be dispositive if present. Requests to pierce the privilege for communications involving the present litigation have almost always been denied, regardless of the existence of other Garner factors. Similarly, communications related to past actions in the form of post-event remedial advice have been found to be protected from disclosure.

Cases Applying the Garner Factors

Although the relative importance of these factors and when each weighs in favor of good cause is generally clear, Garner and its progeny have provided no standard calculus for determining when they add up to good cause. Garner itself provides little guidance, merely stating that these nine factors are among the “many indicia that may contribute to a decision of presence or absence of good cause.” Subsequent decisions have made little effort to elaborate, and simply state that good cause does or does not exist after purporting to analyze the Garner factors. Occasionally, in borderline cases, this lack of a standard calculus can lead to inconsistent results. The following cases from three different jurisdictions are representative of the issues at play

Ryskamp ex rel. Boulder Growth & Income Fund v. Looney

Ryskamp ex rel. Boulder Growth & Income Fund v. Looney, No. 10-CV-00842-WJM-KLM, 2011 WL 3861437 (D. Colo. 2011) is an example of an easy case where most of the relevant factors pointed against good cause. Plaintiffs sought 11,000 pages of privileged documents used by the defendant's Review Committee during an investigation. Applying the Garner factors, the court held that the size of the plaintiff class, less than 1% of all shareholders, was dispositive in finding good cause did not exist. This finding was bolstered by the fact that plaintiffs had not yet survived a motion to dismiss, i.e., their claim had not yet been shown to be colorable. That the information requested could come only from the defendants and that the request was “in some respects limited in scope” (given the large number of documents sought, the court appears to have been somewhat facetious here) was not enough to overcome these factors. Although at least one of the important factors, availability, weighed in defendants favor, at least two other factors, the number of shareholders represented and colorability so clearly weighed against the plaintiffs that almost any court would have certainly ruled against finding good cause.

Panter v. Marshal Field & Co.

Panter v. Marshall Field & Co., 80 F.R.D. 718, 723 (N.D. Ill. 1978) is an example of both a strong case for finding good cause and the inapplicability of the fiduciary exception to documents concerning the litigation itself. In Panter , the court found that plaintiffs had shown good cause to overcome defendants' assertion of privilege for certain documents they sought: The plaintiff class represented 97% of the defendant's stock; review of the plaintiffs' allegations and in camera review of the documents at issue showed plaintiffs' claims were colorable; and no argument was made that the information sought was available from other sources. While the court's in camera review of the documents to determine colorability is unusual in the reported cases, the three major factors discussed (and the fact that this was a derivative suit) weighed strongly in plaintiff's favor.

However, the court also found that good cause did not exist for certain documents because they consisted of legal advice concerning the present lawsuit or other possible shareholder litigation arising from the same events. Thus, even where all other Garner factors pointed toward finding good cause, the court still refused to apply the fiduciary exception to documents discussing the present or related lawsuits.

RMED Int'l., Inc. v. Sloan's Supermarkets, Inc.

RMED Int'l., Inc. v. Sloan's Supermarkets, Inc., No. 94 Civ. 5587PKLRLE, 2003 WL 41996 (S.D.N.Y. Jan 6, 2003), is a close case finding good cause, which also shows the importance courts may place on the necessity and availability of the information sought. In RMED , Plaintiffs in a non-derivative case sought documents related to alleged misstatements and nondisclosures related to an FTC investigation. Plaintiffs had survived a motion to dismiss and stated that their class was comprised of nearly a thousand members, although they failed to provide any estimate as to what percentage of the total number of shareholders this represented, a fact that the court found diminished the weight of this factor. The bona fides factor weighed against applying the exception as this was a non-derivative case where the plaintiffs were seeking monetary damages. Necessity was shown because the opinion of the defendants' attorneys' regarding the investigation was highly relevant to the determination of the falsity, materiality and scienter, and the information contained in the documents “did not appear” to be available from the other sources, although the court did not describe any attempts take by the plaintiffs to secure it.

The court then “summarily” determined that the remaining factors favored the plaintiffs. Because the majority of the good cause factors, including “the most important factor,” the necessity of the information sought and its availability from other sources, favored the plaintiff, the court compelled production of the privileged documents.

In re Pfizer Inc. Sec. Litig.

In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260 (SS), 1993 WL 561125 (SDNY Dec. 23, 1993) is an example of a close case finding good cause did not exist, and again, illustrating the importance of the necessity and availability of the information sought. In Pfizer , plaintiffs sought 1,219 privileged documents discussing the defendant's exposure to tort liability in certain present and future suits, although the court determined that a number of these documents were not actually privileged. Certain Garner factors weighed in favor of good cause: The plaintiffs represented a “substantial majority” of shareholders and their claim had survived a motion to dismiss and was thus at least colorable.

However, these factors were outweighed by two others. One, the plaintiffs had not shown a “serious need” for the documents because the information sought by the plaintiffs was likely available in certain other documents the court had found to be non-privileged. This was true even though the requested documents were specified and hence not part of a “fishing expedition.” Two, the court was also concerned that the revelation of documents containing individual reserve figures could unduly prejudice the defendant in the separate tort litigation, representing a rare example where a court found the potential disclosure of trade secrets to weigh against finding good cause.

Shirvani v. Capital Investing Corp., Inc.

Finally, some courts have criticized Garner. For instance, in Shirvani v. Capital Investing Corp., Inc., 112 F.R.D. 389, 390-91 (D. Conn. 1986), the court criticized the “rather vague” good cause exception as “ill-defined in origin” and “troublesome in application,” and stated that a “hasty resort to Garner concepts will confuse who corporate counsel's clients realistically are, and ignore the genuine need of management in the ordinary course for confidential communication and advice.” Shirvani found no need for the exception as shareholder rights were adequately protected under the crime-fraud exception to the attorney-client privilege. Id. at 391. The court in Milroy v. Hanson, 875 F. Supp. 646, 651 (D. Neb. 1995) refused to apply Garner , arguing that its adoption prior to the Supreme Court's recognition of the corporate attorney-client privilege in Upjohn v. United States and CFTC v. Weintraub was “problematic” because it was a “lower-court-created exception” to a general rule announced by the Supreme Court and it “does not focus on the critical issue of 'management'” and who may assert the privilege as did the Supreme Court cases. State courts in Pennsylvania, see Agster v. Barmada,'43 Pa. D. & C.4th 353, 363 (Pa. Com. Pl. 1999), and California, see Hoiles v. Superior Court, 157 Cal. App. 3d 1192, 1199 (Cal. Ct. App. 1984) have also rejected Garner as incompatible with their state privilege law.

Conclusion

The fiduciary exception allows plaintiffs in shareholder actions to pierce the attorney-client privilege of a corporate defendant if they can show “good cause” to do so. Although Garner provides only a vague standard as to how to judge the existence of good cause and subsequent cases have generally failed to formally elaborate a clearer one, in practice the application of the standard can be predictable, with certain exceptions. Generally, courts have been likely to find good cause if the bulk of the four most important factors, the number of shareholders represented, the bona fides of the plaintiffs, the colorability of their claim, and the necessity and availability of the information sought, point towards a finding of good cause. However, courts have not found good cause where the information sought is available from other sources or involves communications concerning present litigation or remedial advice. Finally, some courts have criticized Garner on the grounds that its “good-cause” test is unpredictable and threatens the existence of the attorney-client privilege. Thus, it is advisable for corporate counsel to be familiar with the state of this doctrine in the jurisdiction at issue.

Richard B. Kapnick is senior counsel, Courtney A. Rosen is a partner and Eric T. Schmitt is an associate in Sidley Austin LLP's Chicago office. The views expressed in this article are exclusively those of the author and do not necessarily reflect those of Sidley Austin LLP and its partners.

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The applicability of the attorney-client privilege within the corporate setting has been firmly established for decades. However, corporate counsel may be surprised to learn that, under certain circumstances, plaintiffs in shareholder litigation have gained access to privileged materials upon a showing of “good cause” under the fiduciary exception. This article discusses the basis for the fiduciary exception, the factors involved in the good-cause analysis, and the circumstances under which courts have turned over privileged materials to plaintiffs.

Garner and the Applicability of the Fiduciary Exception

The fiduciary exception to the attorney-client privilege was first recognized in Garner v. Wolfinbarger , 430 F.2d 1093 (5th Cir. 1970). Garner involved a shareholder derivative action alleging fraud by corporate management and a direct action alleging fraud and violations of securities laws. Shareholders sought discovery of communications between corporate management and corporate counsel, and the corporation asserted the attorney-client privilege. Although these communications were privileged, the court allowed plaintiffs access to them, holding that in the context of a derivative action, shareholders and corporate managers have a mutual interest in relevant communications because of the fiduciary duty owed by the corporation to its shareholders. While the court noted that allowing plaintiffs access to privileged documents could leave management open to second-guessing and harassment, it emphasized that “management does not manage for itself and that the beneficiaries of its action are the stockholders.” Id. at 1101.

According to the court, when a corporation is sued by its stockholders on charges of acting inimically to stockholder interests, “protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.” Id. at 1103-04.

Garner has been almost universally adopted among federal courts, and by many state courts, including Delaware and New York, although notably not California. It has been expanded beyond derivative suits to cover a wide variety of fiduciary relationships, including ERISA administrators and beneficiaries, estates and their beneficiaries, trustees and trust beneficiaries, banks acting as fiduciaries in real estate transactions, and joint ventures. Importantly, most federal courts have found that Garner applies to non-derivative direct shareholder actions, although a few courts, most notably the Ninth Circuit, have refused to do so, and others have held such actions to a higher standard than derivative cases.

Courts have also placed limits on the fiduciary exception. Universally, courts have found that Garner does not apply to attorney work product, exceptions to which are governed by the higher standard of Federal Rule of Civil Procedure's 26(b)(3)'s “undue hardship” test. Some courts have also limited Garner's application to plaintiffs who were shareholders at the time the privileged communications at issue were made, reasoning that only such plaintiffs were the intended beneficiaries of the trust and so only they should benefit from the fiduciary exception. However, the real hurdle for plaintiffs in a shareholder action for receiving the benefit of the fiduciary exception is the establishment of what Garner called “good cause” for piercing the privilege.

Establishing Good Cause: The Nine ' Garner Factors '

The Garner court set forth nine non-exclusive factors to determine whether “good cause” for piercing the privilege exists. Although courts may consider other indicia of good cause, almost all limit their analysis to these nine. The nine “Garner factors” are:

1. The number of shareholders and the percentage of stock they represent;
2. The bona fides of the shareholders;
3. The nature of the shareholders' claim and whether it is obviously colorable;
4. The apparent necessity or desirability of the shareholders having the information and the availability of it from other sources;
5. Whether, if the shareholders' claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality;
6. Whether the communication related to past or to prospective actions;
7. Whether the communication is of advice concerning the litigation itself;
8. The extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; and
9. The risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons.

The burden is on the plaintiff to establish each of these factors. The plaintiff need not prove the existence of each one of these factors to establish good cause; Garner simply states that the presence of these factors “may contribute” to a finding of good cause. In practice, the first four factors have proven to be by far the biggest “contributors” to good-cause findings and will therefore be discussed in more detail.

The Number of Shareholders Represented

While the basic premise behind this factor is clear ' the greater the percentage of stock owned by the plaintiff class the more likely a finding of good cause ' the exact location where ownership changes from militating against a finding of good cause to militating in favor of it is unclear. Unsurprisingly, courts have found that ownership of a “substantial majority” of shares by the plaintiff class is evidence that good cause exists. At the other end, courts have found that ownership of 2% or less of a corporation's stock is evidence that good cause does not exist, and in at least one case, a court, discussed below, has actually found this to be dispositive. There is little case law in between these two extremes, although courts have found seemingly low ownership numbers to favor good cause in the case of closely held corporations.

The Bona Fides of the Shareholder-Plaintiffs

The Garner court did not define “bona fides,” but appears to have intended to ensure that plaintiffs were bringing their suit in good faith rather than to harass management or as a strike suit. In the years since, however, this factor has come almost exclusively to focus on whether or not plaintiffs are suing derivatively on behalf of a corporation. Although the vast majority of courts allow plaintiffs in non-derivative suits to invoke the fiduciary exception, these courts have held that because such plaintiffs are seeking compensation for themselves rather than on behalf of a corporation, the nature of their actions weighs against a finding of good cause. Some courts even go so far as to say that the fact that a suit is non-derivative weighs strongly against a finding of good cause.

Colorability of the Claim

In determining whether a claim is colorable, most courts simply look to whether it has survived a motion to dismiss. Surviving a motion to dismiss (or summary judgment) is never dispositive, but it does bolster a finding of good cause. By contrast, if a claim has not yet survived a motion to dismiss, this weighs strongly against piercing the privilege. Although unusual, some courts, including in a decision discussed below, have looked directly at the evidence to determine if a claim is colorable.

Necessity and Availability Of the Information Sought

This factor actually encompasses two separate issues: the relevancy of the documents or testimony sought to the plaintiffs' case and its availability from other sources, with the latter being perhaps the most important issue in the entire good cause calculus.

As to relevancy, if the information that the plaintiff seeks is highly relevant to important issues in his case, then it weighs towards a finding of good cause; if it relates to issues that are not particularly important to his case, then it weighs against. Plaintiff can also show relevance by pointing to a particular purpose he intends to use information for, such as the cross-examination of a specific witness.

As to availability, not only does the existence of other possible sources for the information sought weigh against a finding of good cause, but it generally will lead the court to deny the plaintiff's motion to pierce the privilege altogether. The most common alternative sources of information courts point to in denying Garner motions are depositions and interrogatories of company directors and executives, although the existence of non-privileged documents and circumstantial evidence has also been cited. That such alternatives may be more expensive and inconvenient to the plaintiff is irrelevant to the Garner analysis.

Other Factors

Most of the other factors are rarely examined in depth or given much weight. If plaintiff's claim involves acts that are clearly criminal, then this weighs in favor of disclosure, but this will rarely be the case in shareholder acts. Courts have not found that plaintiffs are engaging in “fishing expeditions” so long as they specifically identify the documents or information sought and their reason for doing so. Finally, possible revelations of trade secrets are unlikely to present problems as they can be avoided with the imposition of a protective order. The exception to this rule is when the revelations would likely prejudice the defendant in a separate lawsuit.

Two other factors, however, while rare, can be dispositive if present. Requests to pierce the privilege for communications involving the present litigation have almost always been denied, regardless of the existence of other Garner factors. Similarly, communications related to past actions in the form of post-event remedial advice have been found to be protected from disclosure.

Cases Applying the Garner Factors

Although the relative importance of these factors and when each weighs in favor of good cause is generally clear, Garner and its progeny have provided no standard calculus for determining when they add up to good cause. Garner itself provides little guidance, merely stating that these nine factors are among the “many indicia that may contribute to a decision of presence or absence of good cause.” Subsequent decisions have made little effort to elaborate, and simply state that good cause does or does not exist after purporting to analyze the Garner factors. Occasionally, in borderline cases, this lack of a standard calculus can lead to inconsistent results. The following cases from three different jurisdictions are representative of the issues at play

Ryskamp ex rel. Boulder Growth & Income Fund v. Looney

Ryskamp ex rel. Boulder Growth & Income Fund v. Looney, No. 10-CV-00842-WJM-KLM, 2011 WL 3861437 (D. Colo. 2011) is an example of an easy case where most of the relevant factors pointed against good cause. Plaintiffs sought 11,000 pages of privileged documents used by the defendant's Review Committee during an investigation. Applying the Garner factors, the court held that the size of the plaintiff class, less than 1% of all shareholders, was dispositive in finding good cause did not exist. This finding was bolstered by the fact that plaintiffs had not yet survived a motion to dismiss, i.e., their claim had not yet been shown to be colorable. That the information requested could come only from the defendants and that the request was “in some respects limited in scope” (given the large number of documents sought, the court appears to have been somewhat facetious here) was not enough to overcome these factors. Although at least one of the important factors, availability, weighed in defendants favor, at least two other factors, the number of shareholders represented and colorability so clearly weighed against the plaintiffs that almost any court would have certainly ruled against finding good cause.

Panter v. Marshal Field & Co.

Panter v. Marshall Field & Co. , 80 F.R.D. 718, 723 (N.D. Ill. 1978) is an example of both a strong case for finding good cause and the inapplicability of the fiduciary exception to documents concerning the litigation itself. In Panter , the court found that plaintiffs had shown good cause to overcome defendants' assertion of privilege for certain documents they sought: The plaintiff class represented 97% of the defendant's stock; review of the plaintiffs' allegations and in camera review of the documents at issue showed plaintiffs' claims were colorable; and no argument was made that the information sought was available from other sources. While the court's in camera review of the documents to determine colorability is unusual in the reported cases, the three major factors discussed (and the fact that this was a derivative suit) weighed strongly in plaintiff's favor.

However, the court also found that good cause did not exist for certain documents because they consisted of legal advice concerning the present lawsuit or other possible shareholder litigation arising from the same events. Thus, even where all other Garner factors pointed toward finding good cause, the court still refused to apply the fiduciary exception to documents discussing the present or related lawsuits.

RMED Int'l., Inc. v. Sloan's Supermarkets, Inc.

RMED Int'l., Inc. v. Sloan's Supermarkets, Inc., No. 94 Civ. 5587PKLRLE, 2003 WL 41996 (S.D.N.Y. Jan 6, 2003), is a close case finding good cause, which also shows the importance courts may place on the necessity and availability of the information sought. In RMED , Plaintiffs in a non-derivative case sought documents related to alleged misstatements and nondisclosures related to an FTC investigation. Plaintiffs had survived a motion to dismiss and stated that their class was comprised of nearly a thousand members, although they failed to provide any estimate as to what percentage of the total number of shareholders this represented, a fact that the court found diminished the weight of this factor. The bona fides factor weighed against applying the exception as this was a non-derivative case where the plaintiffs were seeking monetary damages. Necessity was shown because the opinion of the defendants' attorneys' regarding the investigation was highly relevant to the determination of the falsity, materiality and scienter, and the information contained in the documents “did not appear” to be available from the other sources, although the court did not describe any attempts take by the plaintiffs to secure it.

The court then “summarily” determined that the remaining factors favored the plaintiffs. Because the majority of the good cause factors, including “the most important factor,” the necessity of the information sought and its availability from other sources, favored the plaintiff, the court compelled production of the privileged documents.

In re Pfizer Inc. Sec. Litig.

In re Pfizer Inc. Sec. Litig., No. 90 Civ. 1260 (SS), 1993 WL 561125 (SDNY Dec. 23, 1993) is an example of a close case finding good cause did not exist, and again, illustrating the importance of the necessity and availability of the information sought. In Pfizer , plaintiffs sought 1,219 privileged documents discussing the defendant's exposure to tort liability in certain present and future suits, although the court determined that a number of these documents were not actually privileged. Certain Garner factors weighed in favor of good cause: The plaintiffs represented a “substantial majority” of shareholders and their claim had survived a motion to dismiss and was thus at least colorable.

However, these factors were outweighed by two others. One, the plaintiffs had not shown a “serious need” for the documents because the information sought by the plaintiffs was likely available in certain other documents the court had found to be non-privileged. This was true even though the requested documents were specified and hence not part of a “fishing expedition.” Two, the court was also concerned that the revelation of documents containing individual reserve figures could unduly prejudice the defendant in the separate tort litigation, representing a rare example where a court found the potential disclosure of trade secrets to weigh against finding good cause.

Shirvani v. Capital Investing Corp., Inc.

Finally, some courts have criticized Garner. For instance, in Shirvani v. Capital Investing Corp., Inc. , 112 F.R.D. 389, 390-91 (D. Conn. 1986), the court criticized the “rather vague” good cause exception as “ill-defined in origin” and “troublesome in application,” and stated that a “hasty resort to Garner concepts will confuse who corporate counsel's clients realistically are, and ignore the genuine need of management in the ordinary course for confidential communication and advice.” Shirvani found no need for the exception as shareholder rights were adequately protected under the crime-fraud exception to the attorney-client privilege. Id. at 391. The court in Milroy v. Hanson , 875 F. Supp. 646, 651 (D. Neb. 1995) refused to apply Garner , arguing that its adoption prior to the Supreme Court's recognition of the corporate attorney-client privilege in Upjohn v. United States and CFTC v. Weintraub was “problematic” because it was a “lower-court-created exception” to a general rule announced by the Supreme Court and it “does not focus on the critical issue of 'management'” and who may assert the privilege as did the Supreme Court cases. State courts in Pennsylvania, see Agster v. Barmada,'43 Pa. D. & C.4th 353, 363 (Pa. Com. Pl. 1999), and California, see Hoiles v. Superior Court , 157 Cal. App. 3d 1192, 1199 (Cal. Ct. App. 1984) have also rejected Garner as incompatible with their state privilege law.

Conclusion

The fiduciary exception allows plaintiffs in shareholder actions to pierce the attorney-client privilege of a corporate defendant if they can show “good cause” to do so. Although Garner provides only a vague standard as to how to judge the existence of good cause and subsequent cases have generally failed to formally elaborate a clearer one, in practice the application of the standard can be predictable, with certain exceptions. Generally, courts have been likely to find good cause if the bulk of the four most important factors, the number of shareholders represented, the bona fides of the plaintiffs, the colorability of their claim, and the necessity and availability of the information sought, point towards a finding of good cause. However, courts have not found good cause where the information sought is available from other sources or involves communications concerning present litigation or remedial advice. Finally, some courts have criticized Garner on the grounds that its “good-cause” test is unpredictable and threatens the existence of the attorney-client privilege. Thus, it is advisable for corporate counsel to be familiar with the state of this doctrine in the jurisdiction at issue.

Richard B. Kapnick is senior counsel, Courtney A. Rosen is a partner and Eric T. Schmitt is an associate in Sidley Austin LLP's Chicago office. The views expressed in this article are exclusively those of the author and do not necessarily reflect those of Sidley Austin LLP and its partners.

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