NV Denies Ex-Directors, Officers Privileged Corporate Documents

NV Denies Ex-Directors, Officers Privileged Corporate Documents

A former officer or director is not entitled to use a corporation’s attorney-client privileged documents in litigation with the corporation, the Nevada Supreme Court decided earlier this month.  With that holding, Nevada becomes one of a growing number of jurisdictions to reject the “collective corporate client” exception to a corporation’s attorney-client privilege.

The issue of attorney-client privilege often arises in litigation between corporations and their former directors and officers.  Frequently, directors and officers retain arguably privileged materials even after their tenure with the corporation.  In the event of litigation, former directors and officers often claim a right to use that and other privileged information created before their departure.  Typically, former directors and officers base their claim on the “collective corporate client” doctrine, which postulates that the corporation as legal client extends to the individual directors and officers through whom the corporation acts.  Corporations bristle at the notion that an adverse party may possess, much less use, the corporation’s privileged documents.

In the context of litigation, the debate over a director and officer’s use of privileged materials often is an emotional one, with practical, policy and equitable arguments favoring both sides.  Not surprisingly, courts have split on the proper resolution of the issue.  Increasingly, however, courts are siding with corporations by holding that a corporate director or officer’s right to access to privileged materials ends with their tenure.  One of the most recent jurisdictions to favor corporations was Nevada.

Las Vegas Sands Corp. v. The Eighth Judicial Dist. arose out of a breach of contract lawsuit against a casino operating company by its former president and CEO.  On or about his last date of employment, the former executive copied and made off with approximately 40 gigabytes of emails and other communications.  During document discovery, the former executive disclosed his possession of the documents.  The corporation sought to have the documents returned on the basis that the former executive shouldn’t even have them. The trial court rebuffed the corporation on the ground that the officer was within a “‘class of persons’ legally entitled to view and use privileged documents that pertain to [the officer’s] tenure at [the corporation].”  The Nevada Supreme Court reversed.  In doing so, it rejected any “collective corporate client” exception to Nevada’s attorney-client privilege.

The Las Vegas Sands courtbased its rejection of the “collective corporate client” exception on Nevada’s attorney-client privilege statute.  As the court explained, that statute permits claims of privilege only by the “client,” client being narrowly defined as any “person, including a public officer, corporation, association or other organization or entity.”  The court recognized that other jurisdictions—chief among them New York and Delaware—had articulated a “joint client” or “collective corporate client” exception to the attorney-client privilege.  The court declined to adopt that exception, however, including for fear that it might chill “candid communications between corporate managers and counsel.”

While California courts have not spoken directly to the issue of former director and officer access to privileged corporate materials, there is reason to believe they would side with corporations.  In the 1984 case of Hoiles v Superior Court, the California Court of Appeal rejected a demand for access to corporate attorney-client materials by a then-minority shareholder and dissident director.  As the Hoiles court noted, however, the plaintiff sued as an individual and as a director.  The court left open the question of how the plaintiff’s claim might have fared had it been brought in his capacity as a director.

Given the importance of the attorney-client privilege, and the frequency with which former directors and officers end up in possession of privileged corporate documents, the “collective corporate client” debate will likely continue.  In the interim, attorneys should beware the issue and, consistent with their ethical obligations, tread lightly around the subject of an adverse party’s attorney-client privilege.