A recent Delaware court decision rejecting a Facebook, Inc. shareholder’s attempt to access the company’s attorney-client privileged documents concerning a Federal Trade Commission (FTC) investigation shows that, as we previously explained, it remains difficult in most jurisdictions for a shareholder to obtain its corporation’s attorney-client communications.
Those with ownership stakes in privately held businesses, partnerships, or family offices need to closely collaborate with and trust others. When disagreements and disputes over rights and responsibilities arise, individual emotions and personalities can complicate matters. This ongoing series will help owners anticipate potential problems when structuring their businesses and find solutions to issues that commonly arise among owners of privately held businesses, both before and during litigation.
In Employees’ Retirement System of Rhode Island v. Facebook, Inc., the shareholder (a pension fund) had previously demanded to inspect Facebook’s books and records related to Facebook’s 2019 settlement for $5 billion with the FTC under section 220 of the Delaware General Corporation Law. The shareholder sought to determine whether Facebook overpaid in the settlement to protect CEO Mark Zuckerberg from personal liability. The Delaware Court of Chancery ruled that the shareholder had not shown that it has good cause to access the corporation’s privileged communications.
This result is unsurprising. Delaware courts, like courts in most jurisdictions, apply the Garner test to determine whether a shareholder can access a corporation’s attorney-client privileged communications. The Garner test comes from the Fifth Circuit case Garner v. Wolfinbarger, which held that a corporation’s shareholders can access the company’s attorney-client privileged communications by showing good cause why the attorney-client privilege should not protect those communications from disclosure. The Garner test is fact-intensive and difficult to satisfy.
If Facebook were organized as an Illinois LLC, and if the shareholder were a member of that LLC, the outcome may have been different. The shareholder likely could have obtained Facebook’s privileged communications through a request to inspect books and records or in discovery (if it had brought a lawsuit against Facebook). As noted in our previous post, the attorney-client privilege probably does not shield an Illinois LLC’s otherwise-privileged communications from disclosure to the LLC’s members.
When litigating disputes involving a company and its shareholders or members, it is important to consider the form and jurisdiction of the company to determine whether the company’s privileged communications are discoverable.
 C.A. No. 2020-0085-JRS, 2021 WL 529439 (Del. Ch. Feb. 10, 2021).
 430 F.2d 1093, 1103-1104 (5th Cir. 1970)