Delaware Court Ruling Raises Privilege Concerns for Communications With Outside Directors
In Short
The Situation: Use by outside directors of non-company email accounts or other non-secure platforms to conduct board business risks waiver of the board's privilege. Even if the privilege is maintained, use of such an account or platform invites a challenge to the privilege.
The Result: In a recent decision, the Delaware Court of Chancery held that the attorney-client privilege did not apply to a company's communications with its fiduciaries, when those individuals were employees of another company and used their employer's email account for the communications.
Looking Ahead: In light of this decision, companies that have not already done so should review the email accounts that their outside directors are using to conduct board business. If outside directors are using non-company email accounts or other non-secure platforms, the board company should consider using means to communicate with their directors that do not put privilege at risk, such as communicating via a board portal or establishing company email accounts for outside directors, and sending non-substantive alerts to inform the directors that they have messages on the board portal or in their board email accounts.
The ruling arose out of a discovery dispute in In re WeWork Litigation, where WeWork is suing SoftBank for allegedly breaching an agreement to buy up to $3 billion of WeWork stock. WeWork moved to compel the production of around 90 documents that were withheld or redacted by SoftBank on the basis of attorney-client privilege. The documents in question were emails sent or received by individuals who served in roles at SoftBank and were also employees of Sprint, and which were transmitted using their Sprint email accounts. Sprint is not involved in the lawsuit, but SoftBank owned 84% of the company until April 1, 2020, and certain individuals held roles at both companies. For instance, SoftBank's COO was the chairman of both WeWork and Sprint, Sprint's CEO assisted SoftBank's COO on WeWork-related matters, and two Sprint employees were seconded to SoftBank and were working for SoftBank's COO.
Using their Sprint email accounts, Sprint's CEO and one of the Sprint secondees at Softbank sought and received legal advice from SoftBank's internal and external counsel regarding WeWork. WeWork moved to compel production of the emails, arguing that they were not "confidential communications," and thus not protected by attorney-client privilege, because the Sprint employees did not have a reasonable expectation of privacy when using their Sprint email accounts for SoftBank-related purposes. The Chancery Court agreed and ordered production of the documents.
This decision has clear implications for companies' communications with their outside directors, who often hold executive positions at other companies. While the decision here dealt with email, an outside director's use of text messages or other non-secure platforms to communicate regarding board business on a phone issued by an outside entity could raise the same issue.
Two Key Takeaways
- Companies should review the email addresses that their directors are using to conduct board business. If outside directors are using non-company email accounts (whether they are their employers' email accounts or other non-secured platforms), the company should implement safeguards to protect the privilege.
- Companies should assess their policies and practices relating to communications with outside directors. If a company does not already have a policy prohibiting outside directors from using non-company email accounts or other non-secure platforms to conduct board business, it should consider enacting one.
