Del Giudice et al v. Harlan et al

Filing 61

MEMORANDUM AND ORDER granting in part and denying in part 51 Motion to Compel.The plaintiffs' motion to compel (Docket no. 51) is granted in part and denied in part. The Bracewell Documents shall be conferred to agree on an appropriate screening procedure. The motion is denied in all other respects. (As further set forth in this Order.) (Signed by Magistrate Judge James C. Francis on 9/22/2016) (cf)

Background
Rockland
specializes

is
in

a

Delaware

energy-related

limited

liability

investments.

company

(Second

that

Amended

Complaint (“Complaint”), ¶ 8; Defendants’ Memorandum of Law in
Opposition

to

Plaintiffs’

Motion

to

Compel

Production

Privileged Bracewell Documents (“Def. Memo.”) at 2).

of

The parties

comprise the three classes of members of Rockland: the defendants,
who are energy sector experts and manage the company and its
investments, are Class A-1 members (Complaint, ¶ 12; Def. Memo. at
2); the plaintiffs are professional investors who, at the relevant
time, largely made up Class A-2 and Class B (Complaint, ¶ 12; Def.
Memo. at 2). 1
company’s
Operating

Each of the four defendants occupies a seat on the

board

of

Agreement

directors.
of

(Fourth

Rockland

Amended

Capital

LLC

and

Restated

(“Operating

Agreement”), attached as Exh. B to Declaration of Joshua B. Katz
dated Oct. 13, 2015, § 7.3(b)).

From March 16, 2013, until April

1, 2015, Mr. Del Giudice and Mr. Lambert each held one seat and
Weichert (through its chief executive Gerald Crotty) held two

1

I say “largely” because the defendants “also hold a small
portion of the Class B membership interests.” (Complaint, ¶ 12).
I say “at the relevant time” because one of the plaintiffs, Mr.
Del Giudice, reportedly no longer has a membership interest in the
firm.
(Def. Memo. at 12; [Redlined] Proposed Third Amended
Complaint (“Proposed Complaint”), attached as Exh. C to
Declaration of Joseph Lambert dated March 3, 2016, ¶ 39).
2

seats.

(Operating Agreement at 7 & § 7.3(b)).

Since April 1,

2015, Mr. Del Giudice is no longer a director, and Mr. Crotty and
Mr. Lambert each hold one seat.

(Operating Agreement at 4 & §

7.3(c); Def. Memo. at 3).
The Operating Agreement governs the priority of payments of
“Cash Available for Distributions” (defined as “cash on hand in
[Rockland]

accounts

less

the

capital

members according to their class.

reserves

required”)

to

(Operating Agreement at 3). The

“Class A-1 Preference Amount” for each fiscal year was to be
determined prior to the beginning of the next fiscal year by a
majority vote of the board of directors upon a recommendation made
by a four-director committee.

(Operating Agreement at 4).

Until

April 1, 2015, Mr. Crotty wielded an additional (tie-breaking)
vote on the Class A-1 Preference Amount.

(Operating Agreement, §

7.6(c)(ii); Declaration of Joseph Lambert dated July 29, 2016
(“Lambert Decl.”), ¶ 3).

Pursuant to Section 6.1, the amount was

to be paid on or before January 31 of the following year, after
which the remaining Cash Available was to be allocated to Class A2 and Class B members according to a formula included in the
agreement.

(Operating Agreement, § 6.1).

The plaintiffs allege

that the defendants “failed to timely assemble the information
necessary” to determine the Class A-1 Preference Amount to be
distributed in January 2014.

(Complaint, ¶ 16).
3

Consequently,

pursuant to the Operating Agreement’s provision governing acting
without a meeting of the board of directors, in September 2014 and
January 2015, the Class A-2 and Class B directors set the Class A1 Preference Amount for 2013 and 2014, respectively, and directed
distribution of the Cash Available to all classes.
¶¶ 18, 20; Lambert Decl., ¶ 4).

(Complaint,

The defendants, however, failed

to make the payments, and in April 2015, purportedly in violation
of the Operating Agreement, set a different (and larger) Class A1 Preference Amount for 2014, set a smaller (by $844,000) payout
to Class A-2 and Class B members, and distributed the money.
(Complaint, ¶¶ 19, 21-22; Lambert Decl., ¶ 4).
Meanwhile,

in

the

course

of

discussions

geared

toward

resolving these issues, Mr. Harlan informed Mr. Del Giudice, Mr.
Lambert, and Mr. Crotty that Mr. Harlan had communicated with
Bracewell about the parties’ disputes. (Lambert Decl., ¶ 5; E-mail
of Scott Harlan dated Jan. 30, 2015, attached as part of Exh. 1 to
Lambert Decl.).

Mr. Del Giudice requested “copies of all written

communications between counsel and all employees of Rockland []
concerning Member distributions and compensation since January 1,
2014.”

(E-mail of Michael Del Giudice dated Feb. 23, 2015,

attached as Exh. 2 to Lambert Decl.).

Mr. Harlan provided two

emails he had sent to Alan Rafte, an attorney at Bracewell,
referencing a phone call on January 27, 2015, and stated that
4

further written correspondence would follow, although most of the
advice received “ha[d] been by phone.”

(Email chain dated Jan.

27, 2015, to Feb. 23, 2015, with attachments, attached as Exh. 3
to Lambert Decl.).

After transmitting another batch of emails to

Mr. Del Giudice, Mr. Crotty, and Mr. Lambert, Mr. Harlan asserted
he had disclosed “all the e-mails that [he] ha[d] exchanged with
Bracewell

on

the

subject

[of

member

distributions

and

compensation] since the [the matter] was initiated on January 27.”
(Lambert Decl., ¶ 10; Email chain dated Feb. 24, 2015 to March 4,
2015, attached as Exh. 5 to Lambert Decl.).

Mr. Maiz and Mr.

Zapalac later confirmed that they “had not had any separate written
correspondence with Bracewell on the subject.”

(Email chain dated

March 4, 2015, attached as Exh. 6 to Lambert Decl.).
Attempts to resolve the dispute without litigation failed.
At the end of July 2015, the plaintiffs filed an action in New
York County Supreme Court and the defendants promptly removed it
to this Court.

(Notice of Removal).

The operative complaint

alleges that the defendants breached the Operating Agreement by
(1)

failing

to

provide

information

that

would

have

allowed

distributions to be made under Section 6.1, (2) failing to abide
by the September 2014 and January 2015 “written consents” regarding
distributions, and (3) adopting the April 2015 resolution setting
distributions.

(Complaint,

¶¶
5

25-30).

In

addition,

the

plaintiffs seek a declaratory judgment that Mr. Del Giudice did
not default under the Operating Agreement (which would allow his
interest in Rockland to be redeemed for $1.00) by engaging in
prohibited

“Competitive

Business.”

2

(Complaint,

¶¶

35-40;

Operating Agreement, § 7.9(b) & (c)).
The plaintiffs’ first request for documents sought, among
other things, communications between Rockland and its counsel on
a number of subjects, including the Operating Agreement, the
decision not to make distributions pursuant to the September 2014
and January 2015 written consents, the April 2015 board resolution,
and a January 19, 2016 board resolution setting distributions for
fiscal 2015.

(Notice of Depositions and Request for Production

of Documents, attached as Exh. 8 to Lambert Decl., Request Nos. 913).

The defendants objected to producing their communications

with Bracewell and withheld over 170 of them based on attorney-

2

The Honorable Laura Taylor Swain, U.S.D.J., dismissed the
plaintiffs’ cause of action for conversion.
(Memorandum Order
dated March 25, 2016). A motion to amend the complaint currently
pending before Judge Swain seeks to modify the declaratory judgment
cause of action to state a claim for recovery of Mr. Del Giudice’s
ownership interest in Rockland, and to add claims for breach of
the Operating Agreement in connection with the Class A-1 Preference
Distribution of January 2016, the September 30, 2015 closing of
the New York Office, and Mr. Harlan’s refusal to provide certain
requested information to Mr. Lambert and Mr. Crotty, as well as
for a determination that the defendants may not use Rockland’s
funds to pay expenses incurred in defending this action.
(Proposed Complaint, ¶¶ 34-60).
6

client privilege. 3

(Defendants’ Privilege Log at 3-13).

Those

emails (hereinafter, the “Bracewell Documents”) are the subject of
the plaintiffs’ motion to compel.
Discussion
A.

Choice of Law

The parties engage in a half-hearted dispute about what
state’s law should determine whether the attorney-client privilege
applies to the documents at issue.

The plaintiffs contend that

the Court may apply either Delaware law or New York law because
they are materially indistinguishable.

(Pl. Memo. at 5-6).

The

defendants insist that New York law and Delaware law are not
congruent

and

that

the

proper

application of New York law.

choice-of-law

analysis

compels

(Def. Memo. at 8-9).

First, it appears that the Delaware law differs from New York
law in material ways.

The plaintiffs rely on Kirby v. Kirby, 1987

WL 14862 (Del. Ch. July 29, 1987), and its progeny to support their
position that the directors of Rockland are entitled to access

3

The plaintiffs state that the number of Bracewell emails
withheld is 173.
(Plaintiff’s Memorandum of Law in Support of
Motion to Compel Production of Bracewell Documents (“Pl. Memo.”)
at 2). The defendants’ privilege log lists 175 protected emails
dated on or after March 24, 2015; five of these do not appear to
include any Bracewell attorney as sender or recipient and claim
work product immunity rather than attorney-client privilege.
(Defendants’ Privilege Log, attached as Exh. 9 to Lambert Decl.,
Entries 27, 71, 117, 193, 196).
7

Bracewell’s advice.

(Pl. Memo. at 6-7).

The defendants point

out, however, that some New York courts have disagreed with that
line of cases.

See Nunan v. Midwest, Inc., 11 Misc. 3d 1052(A),

814 N.Y.S.2d 891, 2006 WL 344550, at *7 (Monroe Cty. Sup. Ct. Jan.
10, 2006) (calling Kirby “discredited authority”); cf. Fitzpatrick
v. American International Group, Inc., 272 F.R.D. 100, 105-09
(S.D.N.Y. 2010) (declining to follow Kirby in determining federal
common law of privilege); but see People ex rel. Spitzer v.
Greenberg, 50 A.D.3d 195, 203, 851 N.Y.S.2d 196, 204 (1st Dep’t
2008) (Friedman, J., concurring) (finding “absence of any conflict
between New York law and Delaware law” and citing Kirby).

In

light of these cases, I cannot say with authority that the law of
the two states is materially identical.

A choice-of-law analysis

is therefore necessary.
However, the defendants’ analysis is flawed.

They recognize

that in a diversity case a federal court faced with the possibility
that the law of two or more states might govern applies the choiceof-law rules of the forum state to answer the question.

(Def.

Memo. at 8); Liberty Synergistics Inc. v. Microflo Ltd., 718 F.3d
138, 151 (2d Cir. 2013) (“[Pursuant to the Rules of Decision Act,
28

U.S.C.

§

1652,]

a

federal

court

exercising

diversity

jurisdiction must apply the choice-of-law rules of the state in
which that court sits to determine the rules of decision that would
8

apply

if

the

suit

were

brought

in

state

court.”);

Financial

Technologies International, Inc. v. Smith, No. 99 Civ. 9351, 2000
WL 1855131, at *2 (S.D.N.Y. Dec. 19, 2000).

Nevertheless, they

inexplicably fail to apply New York choice of law rules to the
privilege issue.
attorney-client

Rather, they state that “New York deems the
privilege

to

be

a

matter

of

procedure,

and

therefore ‘[t]he law of the place where the evidence in question
will be introduced at trial or the location of the discovery
proceeding is applied when deciding privilege issues.’” (Def.
Memo. at 8 (quoting JP Morgan Chase & Co. v. Indian Harbor
Insurance Co., 98 A.D.3d 18, 25, 947 N.Y.S.2d 17, 23 (1st Dep’t
2012))).

But federal law deems the privilege to be a substantive

matter, see, e.g., Tudor Insurance Co. v. McKenna Associates, No.
01 Civ. 0115, 2003 WL 21488058, at *1 (S.D.N.Y. June 25, 2003)
(noting that in diversity cases state law applies to substantive
issues such as attorney-client privilege), and, indeed, if it were
truly “a matter of procedure” under Erie Railroad Co. v. Tompkins,
304
law.

U.S.

64

(1938),

this

Court

would

not

apply

state

See Liberty Synergistics, 718 F.3d at 151-53 (stating that,

“after using state conflict-of-laws principles to ascertain the
rules of decision that would apply in the state courts of the
federal forum, federal courts apply those state rules of decision
that are ‘substantive’ under Erie,” regardless of “whether that
9

rule is understood to be ‘procedural’ or ‘substantive’ as a matter
of state law”).
In contract cases in New York courts, the “‘center of gravity’
or

‘grouping

of

contacts’

[is]

the

appropriate

analytical

approach” to determine “which State has ‘the most significant
relationship

to

the

transaction

and

the

parties.’”

Zurich

Insurance Co. v. Shearson Lehman Hutton, Inc., 84 N.Y.2d 309, 317,
618 N.Y.S.2d 609, 612 (1994) (quoting Restatement (Second) of
Conflict of Laws § 188(1)).

However, New York’s Court of Appeals

has recently reaffirmed that “courts should not engage in any
conflicts

analysis

where

the

parties

(2015),

v.

Snow,

26

reargument

N.Y.3d
denied,

a

choice-of-law

Ministers & Missionaries Benefit

provision in their contract.”
Board

include

466,
26

474,

N.Y.3d

25
1136,

N.Y.S.3d
27

21,

N.Y.S.3d

26
499

(2016); see also FPP, LLC v. Xaxis US, LLC, No. 14 Civ. 6172, 2016
WL 1733466, at *2 (S.D.N.Y. Apr. 29, 2016) (applying New York law
to question of privilege pursuant to underlying contract’s choiceof-law provision); Financial Technologies, 2000 WL 1855131, at *2
(stating, “Under New York’s rules, a contractual choice of law
provision will be honored as long as the chosen jurisdiction has
a substantial relationship to the parties or their performance,
and policy considerations of New York law are not violated,” and
collecting cases).

That is, under New York state law, where the
10

contract sued upon contains a choice-of-law provision, that choice
will generally govern what state’s privilege law applies.
the

Operating

Agreement

Agreement, § 12.5).

specifies

Delaware

law.

Here,

(Operating

Delaware law therefore applies to issues of

attorney-client privilege. 4
B.

Legal Standard

Under Delaware law, the attorney-client privilege “protects
the communications between a client and an attorney acting in his
professional capacity where the communications are intended to be
confidential, and the confidentiality is not waived,” in order “to
foster the confidence of the client and enable[] him to communicate
without fear in order to seek legal advice.”

Moyer v. Moyer, 602

A.2d 68, 72 (Del. 1992) (quoting Riggs National Bank of Washington,
D.C. v. Zimmer, 355 A.2d 709, 713 (Del. Ch. 1976)).

A corporation

or other business entity that has sought legal advice may assert
the privilege.

See, e.g., Grimes v. DSC Communications Corp., 724

A.2d 561, 568 (Del. Ch. 1998).

The party seeking to protect a

communication from disclosure must establish that the privilege
applies.

Id.

However, “[o]nce a party has met its burden of

establishing privilege, the burden shifts to the other party to
demonstrate an exception to, or waiver of, the privilege.”

4

In re

Peculiarly, neither side mentions the Operating Agreement’s
choice-of-law provision in its submissions.
11

Teleglobe Communications Corp., Nos. 02-11518, 04 CV 1266, 2006 WL
2568371, at *9 (D. Del. Feb. 22, 2006), aff'd, 2006 WL 2567880 (D.
Del. June 2, 2006).
C.

Access to Bracewell Documents

Kirby v. Kirby involved an action in the Delaware Court of
Chancery “among four siblings over the control of a charitable
[foundation].”

1987 WL 14862, at *1.

As well as being the sole

member of the foundation, Fred Kirby, one of the defendants, sat
on

the

foundation’s

plaintiffs.

Id.

board

of

directors

with

the

three

Unbeknownst to the other directors, Fred Kirby

elected his wife and four children as members.

Id. at *2.

When

the plaintiffs learned of this, they passed a resolution (acting
as directors) stating that the directors were, and could be, the
only members of the foundation.

Id.

Fred Kirby and his wife and

children retaliated by holding “a meeting of members at which they
purported to remove [the] plaintiffs from the board of directors
and elect themselves to it.”

Id.

The plaintiffs sued, seeking a

determination that they, along with Fred Kirby, were the sole
directors of the entity; they also charged Fred Kirby with “various
breaches of fiduciary duty in his management of the Foundation’s
assets and in his election of his wife and four children (the
remaining defendants) as members of the Foundation.”
During

discovery,

the

plaintiffs
12

moved

to

Id. at *1.
compel

the

defendants

to

produce

certain

attorney-client privilege.

documents

Id. at *6.

withheld

pursuant

to

Vice Chancellor Berger

framed the question presented as “whether the attorney-client
privilege may properly be invoked by the corporation against those
who were admittedly its directors at the time the documents were
prepared,” and answered that it could not.

Id. at *7.

He reasoned

that, at the time the legal advice was given, “the directors,
collectively, were the client,” and therefore “all responsible for
the proper management of the corporation.”

Id.

The court further

found that the right to access those documents created while the
plaintiffs were directors did not expire when they were purportedly
removed as directors.
The

vice

Id.

chancellor

differently

assessed

the

plaintiffs’

right to access documents generated after they were removed as
directors.

Noting that “[u]nder the circumstances, it would []

be a ‘fiction’ to say that plaintiffs were the clients to whom
legal advice was rendered,” he asked whether the plaintiffs’ claims
could be analogized to the claims in a shareholder derivative
action.

Id.

The court rejected the defendants’ argument that the

plaintiffs sought “solely to benefit themselves at the expense of
members and directors of the Foundation.”

Id.

Rather, he found

that claims brought under the Delaware statute allowing suits to
determine “the validity of any election, appointment, removal or
13

resignation of any director or officer,” Del. Code Ann. tit. 8, §
225, had “long been recognized as serving the interests of the
corporation as a whole.”

Kirby, 1987 WL 14862, at *7.

As a

result, the withheld documents could be disclosed upon a showing
of good cause.

Id. at *8.

A somewhat similar question was addressed in Moore Business
Forms, Inc. v. Cordant Holdings Corp., Civ. A. Nos. 13911, 14595,
1996 WL 307444 (Del. Ch. June 4, 1996).
agreements,

Moore

Business

Forms

Pursuant to a series of

(“Moore”)

was

entitled

to

designate one director each to the board of Cordant Holdings Corp.
(“Holdings”) -- a wholly-owned subsidiary of Holdings created “as
a vehicle to effectuate the management buy-out of Cordant [Inc.]”
(“Cordant”)

--

and

Cordant.

Id.

at

*1.

Moore

also

owned

approximately 37% of the outstanding stock of Holdings, which
Id.

Holdings could buy back on sixty days’ notice.

Without

informing Moore or its designated director Ronald Rogers, the
Holding board’s two independent directors began negotiations to
finance a stock repurchase.

Id. at *2.

Holdings and Cordant then

gave Moore notice of the repurchase and tendered the fair market
value

of

Moore’s

contending

that

agreements.

shares.

Id.

Moore

it

not

comply

filed

suit

challenging
14

the

with

the

stock

the

tender,

Id.

Moore

did

rejected

parties’

repurchase

and

“contest[ing] Holdings’ refusal to seat Moore’s designee to the
Holdings’ board of directors.”

Id. at *1.

Moore then asked the

court to determine that attorney-client privilege was inapplicable
to legal advice furnished to the Holdings directors (other than
Mr. Rogers) regarding the repurchase.

Id. at *3.

Vice Chancellor

Jacobs first found that, pursuant to a stockholder’s agreement,
Moore was entitled to the same information that its designee, Mr.
Rogers, would have been entitled to.

Id. at *4.

He then addressed

whether “the attorney-client privilege . . . bar[red] Mr. Rogers
from access to the information that was disclosed to all other
Holdings’ directors.”

Id. at *3.

The vice chancellor agreed with

the plaintiff that Delaware case law, including Kirby, supported
the position that “a corporation cannot assert the privilege to
deny a director access to legal advice furnished to the board
Id. at *4.

during the director’s tenure.”

In doing so, he

rejected the notion “that a board may assert the attorney-client
privilege against a stockholder’s director-designee in cases where
the corporation’s interests come into conflict with the interests
of the stockholder.”

Id. at *5.

Kirby and Moore Business Forms appear to dictate that, under
Delaware law, Mr. Lambert and Mr. Crotty are each entitled to all
attorney-client

communications

that

15

were

generated

during

the

period

when

he

was

a

director. 5

Citing

New

York

law,

the

defendants contend that the documents may be withheld because (1)
the plaintiffs are suing to enforce their own interests rather
than acting on behalf of Rockland (Def. Memo. at 9-11) and (2) the
plaintiffs “are or may be adverse” to Rockland (Def. Memo. at 1112 (emphasis omitted) (quoting Barasch v. Williams Real Estate
Co., 104 A.D.3d 490, 492, 961 N.Y.S.2d 125, 127 (1st Dep’t 2013))).
The

problem

is

that

the

Delaware

cases

do

not

make

those

distinctions when addressing the right of a director to legal

5

The plaintiffs seem to have abandoned or waived any claim
under this theory that Mr. Del Giudice is entitled to access
attorney-client communications from the time when he was a
director.
First, their opening brief suffers from imprecision,
lumping all plaintiffs together even though they are clearly
differently situated in regard to this question.
More
importantly, their reply brief clearly limits the extent of their
request: “Mr. Lambert and Mr. Crotty therefore have the right to
attorney-client communications between Rockland and its counsel
and will keep them confidential.” (Plaintiff’s Reply Memorandum
of Law in Further Support of the Motion to Compel Production of
the Bracewell Documents (“Reply”) at 3). Therefore, I need not
decide whether Mr. Del Giudice would have the right to access
attorney-client communications that post-date April 1, 2015.
However, if I were to address the question, I would find he did
not.
Pursuant to Kirby, the answer depends on whether the
plaintiffs here are “serving the interests of the corporation as
a whole.” Kirby, 1987 WL 14862, at *7. As the defendants point
out, the plaintiffs “have repeatedly conceded that [their] claims
in this action pertain solely to their ‘individual capacities.’”
(Def. Memo. at 9). In addition, I do not see that a dispute among
members about divvying up cash distributions is akin to a
derivative action on behalf of the corporation or a suit pursuant
to Title 8, section 225 of the Delaware Code. See Kirby, 1987 WL
14862, at *7.
16

advice provided to the business entity during the time he was a
director.

To be sure, Kirby briefly addresses the question of

whose benefit the plaintiff director seeks to vindicate, asking
whether an action can be analogized to a shareholder’s derivative
claim.
the

Kirby, 1987 WL 14862, at *7.

context

of

a

former

However, it does so only in

director’s

right

to
Id.

material generated after his directorship.

attorney-client
Moore Business

Forms appears to reject the idea that a litigant’s position vis à
vis the

corporation

antagonistic
hand.

or

--

not

that

--

is,

is

whether

relevant

their
to

interests

the

are

question

at

See Moore Business Forms, 1996 WL 307444, at *4.

Indeed,

the case indicates that, where a possible conflict is foreseeable,
the way to keep attorney advice to the business entity confidential
from certain board members is through a separate agreement among
the relevant players.

Id. at *6.

Here, based on the architecture

of the Operating Agreement -- with its board divided evenly between
Class A-1 designees on the one hand and Class A-2 and B designees
on the other, and a fifth tie-breaking vote provided to the
Weichert designee on certain issues (including the Class A-1
Preference

Amount)

--

the

parties

involved

recognized

the

possibility of conflict.

But, as in Moore Business Forms, they

failed

disclosure

protect

against

directors.
17

to

putatively

“adverse”

Under Delaware law, then, Mr. Lambert, and Mr. Crotty are
entitled to attorney-client communications that were generated
during each of their tenures as director. 6
D.

“At Issue” Waiver

The plaintiffs also argue that the defendants have waived any
attorney-client
Privilege

Log

communications

protection
by
between

over

the

“voluntarily
themselves

subject matter of this litigation.”

emails
and

and

included

knowingly
counsel

on

their

producing

concerning

(Pl. Memo. at 8-9).

the

If the

plaintiffs are correct, all of the plaintiffs would have access to
the documents over which the defendants had waived privilege.

6

The defendants note that some of the Bracewell Documents
relate only to the claims in the Proposed Complaint, which is not
yet operative. (Def. Memo. at 16). That is true, and, normally,
those documents would not be discoverable because they relate to
claims that are not yet part of the case. See, e.g., Lifeguard
Licensing Corp. v. Kozak, No. 15 Civ. 8459, 2016 WL 3144049, at
*2-3 (S.D.N.Y. May 23, 2016) (“Even before 2015 amendment [to Rule
26(b)(1) of the Federal Rules of Civil Procedure], it was wellestablished that information relevant only to claims not yet pled
was beyond the scope of discovery, at least without leave of
court.”).
However, here, the right to the documents does not
derive from the rules of relevance, but from Delaware law regarding
directors’ right of access to company documents and a client’s
right of access to its attorney’s advice.
See Kirby, 1987 WL
14862, at *7 (“The issue is not whether the documents are
privileged or whether plaintiffs have shown sufficient cause to
override the privilege.
Rather, the issue is whether the
directors, collectively, were the client at the time the legal
advice was given.”).
Therefore, Rockland’s attorney-client
communications are available to Mr. Lambert and Mr. Crotty
regardless of whether they are relevant to a claim or defense in
the operative complaint.
18

The waiver the plaintiffs urge is sometimes known as “at
issue” waiver.

Under Delaware law,

[t]he at-issue waiver requires the party seeking the
information to meet exacting standards and the Court’s
decision is to be based on fairness. The at-issue
exception
creates
waiver
of
the
attorney-client
privilege when either the party put the communication
itself at issue, or when the issue raised by the party
cannot be resolved without examining the attorney-client
protected communication. This is a two-part test, the
information at issue must relate to “the pivotal issue
in the current litigation and the need for the material
must be compelling.” Typically, compelling need is shown
when the information is unavailable elsewhere.
Wal-Mart Stores Inc. v. AIG Life Insurance Co., No. 07C-05-171,
2008 WL 498294, at *4 (Del. Super. Ct. Jan. 14, 2008) (footnotes
omitted) (quoting Williams Union Boiler v. Travelers Indemnity
Co., No. 01C-11-001, 2003 WL 22853534, at *1 (Del. Super. Ct. July
31, 2003)); see also Tackett v. State Farm Fire and Casualty
Insurance Co., 653 A.2d 254, 259 (Del. 1995) (“The courts of this
State

have

refused

to

allow

a

party

to

make

bare,

factual

allegations, the veracity of which are central to resolution of
the

parties’

dispute,

and

then

assert

the

attorney-client

privilege as a barrier to prevent a full understanding of the facts
disclosed.”), overruled on other grounds by E.I. DuPont de Nemours
and Co. v. Pressman, 679 A.2d 436 (Del. 1996).
to

find

such

waiver

include

actions

Typical situations
alleging

attorney

malpractice, Wal-Mart Stores, 2008 WL 498294, at *4 n.18, or cases
19

where a party relies on the advice of counsel as a defense, such
as when a party argues it cannot be liable because it “acted in
accordance with the legal advice [] received or . . . relied on
some specific advice of legal counsel,” In re Comverge, Inc.
Shareholders Litigation, C.A. No. 7368, 2013 WL 1455827, at *5
(Del. Ch. April 10, 2013).

Waiver may also be found where a party

“partial[ly] disclos[es] [] facts protected by the privilege,”
and, by doing so, “place[s] the party seeking discovery at a
distinct disadvantage due to an inability to examine the full
context of the partially disclosed information.”

Tackett, 653

A.2d at 260; see also Citadel Holding Corp. v. Roven, 603 A.2d
818, 825 (Del. 1992) (“The so-called ‘rule of partial disclosure’
limits

the

waiver

communication.

to

the

subject

matter

of

the

disclosed

The exact extent of the disclosure is guided by

the purposes behind the rule: fairness and discouraging use of the
attorney-client

privilege

as

a

litigation

weapon.”

(internal

citation omitted)).
I understand the plaintiffs to argue that the defendants have
put the Bracewell Documents at issue (1) by contending, in their
opposition to this motion to compel, that Bracewell concluded that
the September 2014 and January 2015 resolutions passed by the
plaintiff directors were invalid (Def. Memo. at 7; Reply at 7-8),
and

(2)

by

producing

some,

but
20

not

all,

attorney-client

communications connected to Bracewell’s advice regarding those
resolutions (Reply at 7).
The first argument is a non-starter.

The mere mention, in

the facts section of an opposition to a motion to compel, that
Rockland’s counsel believed the resolutions to be invalid has
neither put that advice at issue nor placed the plaintiffs in a
position where they cannot make their case without examining the
privileged

communications.

The

defendants

have

not

defended

against the claims in this action by asserting that they relied on
Bracewell’s advice and therefore should not be held liable.

The

defendants’ reference to that advice here, then, does not effect
a waiver.

The other argument also fails.

It appears that there

are a few assertedly privileged emails that, like the documents
already disclosed, discuss the September 2014 and January 2015
resolutions.

(Reply

at

7;

Privilege

Log,

Entries

36-42). 7

Ultimately, however, fairness does not require that the plaintiffs
examine these additional emails, because, although the validity of
those resolutions is an ultimate issue in this case, the plaintiffs
have not established that the defendants have or will rely on the

7

The plaintiffs state that there are “55 Bracewell
communications pertaining to [the September 2014 and January 2015
resolutions].” (Reply at 7). The Privilege Log does not appear
to reflect so many.
21

Bracewell

Documents

to

support

their

position.

Thus,

the

plaintiffs’ “inability to examine” whether Bracewell stuck to its
original analysis, modified it, reversed it, or abandoned it
altogether does not put the plaintiffs at a “distinct disadvantage”
in this litigation. 8

Tackett, 653 A.2d at 260.

plaintiffs

established

have

not

that

the

In short, the

defendants

waived

privilege over the Bracewell Documents.
E.

The Fiduciary Exception

The

so-called

“fiduciary

exception”

to

attorney-client

privilege derives from Garner v. Wolfinbarger, 430 F.2d 1093 (5th
Cir.

1970),

and

vitiates

a

business

entity’s

attorney-client

privilege in certain situations.
[W]here the corporation is in suit against 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 if the stockholders to show cause
why it should not be invoked in the particular instance.
Id. at 1103-04.
the

Garner

The Delaware Supreme Court has recently adopted

doctrine

“in

plenary

stockholder/corporation

proceedings,” as well as in proceedings by stockholders seeking to
examine a corporation’s books and records.

8

Wal-Mart Stores, Inc.

The mere fact that the defendants’ legal argument on this
issue may mirror Bracewell’s analysis is not sufficient to waive
the privilege, as long as the defendants do not assert they are
excused from liability because they relied on the advice.
22

v. Indiana Electrical Workers Pension Trust Fund IBEW, 95 A.3d
1264, 1278 (Del. 2014).

Thus, under Delaware law, a stockholder

(or its equivalent) may “invade the [business entity’s] attorneyclient privilege in order to prove fiduciary breaches by those in
control

of

the

[business

cause.”

Id. at 1276.

entity]

upon

a

showing

of

good

But, for the plaintiffs, there’s the rub.

This is not a claim brought by members of Rockland against Rockland
alleging

that

the

fiduciary duties.

Rockland

board

of

directors

breached

its

Not only have the plaintiffs insisted that the

action involves the defendants “in their individual capacities,
and not as managers of Rockland” (Pl. Memo. at 8), but also they
do not attempt to plead a cause of action for breach of fiduciary
duties against the defendants. 9

Therefore, there is no need to

inquire as to whether the plaintiffs have demonstrated good cause
under Garner’s non-exhaustive list of factors. 10

9

To be sure, the operative complaint uses the phrase
“fiduciary duties” once (Complaint, ¶ 19) -- as does the Proposed
Complaint (Proposed Complaint, ¶ 19) -- but a breach of any such
duties is not the basis for the plaintiffs’ claims, which focus
primarily on the defendants’ breach of contract.
10

These are:

the number of shareholders and the percentage of stock
they represent; the bona fides of the shareholders; the
nature of the shareholders’ claim and whether it is
obviously
colorable;
the
apparent
necessity
or
desirability of the shareholders having the information
and the availability of it from other sources; whether,
23

Remedy

F.

As explained above, under Delaware law, Mr. Lambert and Mr.
Crotty

are

entitled

to

the

plaintiffs, however, are not.

Bracewell

Documents.

The

other

This creates some difficulty, as

all of the plaintiffs are represented by the same law firm.
Therefore, before any attorney-client privileged documents are
produced to Mr. Lambert and Mr. Crotty, plaintiffs’ counsel must
screen off those attorneys with access to these documents from
those representing Mr. Del Giudice, Mr. Rubin, and Ms. Wollman.
The parties shall therefore meet and confer within seven days of
the date of this order to devise an acceptable procedure.

Within

fourteen days of the date of this order, the defendants shall
produce the Bracewell Documents to Mr. Lambert and Mr. Crotty.
Conclusion
The plaintiffs’ motion to compel (Docket no. 51) is granted
in part and denied in part.

The Bracewell Documents shall be

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; whether the
communication is of advice concerning the litigation
itself; the extent to which the communication is
identified versus the extent to which the shareholders
are blindly fishing; the risk of revelation of trade
secrets or other information in whose confidentiality
the corporation has an interest for independent reasons.
Garner, 430 F.2d at 1104.
24