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Keywords

lawsuitplaintiffdefendantattorneysubpoenatestimonycorporationclass actioncommon lawattorney-client privilege
litigationattorneyappealcorporationclass actioncommon lawattorney-client privilege

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Garner v. Wolfinbarger, 430 F.2d 1093, 14 Fed.R.Serv.2d 490, Fed. Sec. L. Rep. P 92,759, Fed. Sec. L. Rep. P 92,819

Facts

Stockholders of First American Life Insurance Company of Alabama filed a class action in the Northern District of Alabama, alleging violations of various securities laws and common law fraud to recover the purchase price of their stock. The defendants included the corporation and its directors and officers. The plaintiffs also claimed that the corporation was damaged by alleged fraud in the issuance and sale of securities, leading to a derivative action against individual defendants. The corporation's attorney, R. Richard Schweitzer, was subpoenaed to provide documents and testimony regarding his communications with the corporation, which the corporation claimed were protected by attorney-client privilege.

Stockholders of First American Life Insurance Company of Alabama (FAL) brought, in the Northern District of Alabama, a class action alleging violations of the Securities Act of 1933, the Securities Exchange Act of 1934, SEC Rule 10(b)(5), the Investment Company Act of 1940, the Alabama Securities Act and common law fraud, seeking to recover the purchase price which they and others similarly situated paid for their stock in FAL.

Issue

The main legal issue was whether the attorney-client privilege is available to a corporation against its stockholders in a lawsuit where the stockholders allege that the corporation and its officers acted against their interests.

This case presents the important question of the availability to a corporation of the privilege against disclosure of communications between it and its attorney, when access to the communications is sought by stockholders of the corporation in litigation brought by them against the corporation charging the corporation and its officers with acts injurious to their interests as stockholders.

Rule

The court ruled that the attorney-client privilege has viability for corporate clients but is not absolute; it can be subject to the stockholders' right to show cause why it should not be invoked in specific instances.

The privilege remains an exception to the general duty to disclose. Its benefits are all indirect and speculative; its obstruction is plain and concrete.

Analysis

The court analyzed the balance of interests between the corporation's need for confidentiality in its communications with counsel and the stockholders' right to access information that may pertain to their claims. It concluded that while the privilege exists, it must be weighed against the stockholders' interests, especially when they allege wrongdoing by the corporation. The court emphasized that management's duty is to act in the best interests of the stockholders, and thus, the privilege cannot be used to shield communications that may be relevant to the stockholders' claims.

The availability vel non of the privilege involves a complex problem of choice of law.

Conclusion

The court vacated the district court's order denying the attorney-client privilege and remanded the case for further proceedings, allowing stockholders to challenge the privilege in specific instances.

The order relating to availability of the attorney-client privilege is Vacated. The cause is Remanded for further proceedings not inconsistent with this opinion.

Who won?

The prevailing party was the stockholders, as the court ruled that the attorney-client privilege could be challenged by them in the context of their claims against the corporation.

The court has concluded that the consolidation of the two interlocutory appeals should be vacated.

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