In the recent decision in Salberg v. Genworth Financial, the Delaware Court of Chancery declined to compel the production of attorney-client privileged documents in a books-and-records action. In Salberg, Vice Chancellor Joseph R. Slights III was confronted with an unusual set of facts which culminated with a trial on the narrow issue of whether Genworth would be required to produce otherwise attorney-client privileged information under the Garner fiduciary exception. The court held that despite most of the factors in the Garner analysis being favorable to the plaintiffs' position, those factors were not all-inclusive nor dispositive in every case. Ultimately, the court held that the plaintiffs failed to demonstrate the “good cause” necessary to satisfy the Garner test.

The plaintiffs in Salberg were stockholders of Genworth and, almost a year prior to making their Section 220 demand, commenced a derivative action asserting breaches of fiduciary duties against Genworth directors and officers in the Court of Chancery. By late 2016, the parties in the derivative action were submitting briefs related to the defendants' motion to dismiss the complaint. However, before the motion to dismiss was resolved by the court, Genworth announced that it would be acquired by a Chinese company in an all-cash transaction. Following the announcement of the impending sale of Genworth, plaintiffs made their Section 220 demand upon Genworth, seeking books and records that would allow them to investigate if and how the directors valued the pending derivative claims in connection with the proposed merger. After a series of meet-and-confer sessions, Genworth produced a total of approximately 700 pages of documents. However, many of the documents were heavily redacted based on assertions of attorney-client privilege. After being unable to resolve their dispute over Genworth's redacted production, plaintiffs filed a Section 220 complaint in January.

The single issue presented to the court for disposition at trial was whether the Garner fiduciary exception should preclude Genworth from redacting the produced documents for attorney-client privilege. Delaware's Supreme Court has adopted the Garner fiduciary exception in both plenary and Section 220 actions. The Garner exception recognizes “where 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 of the stockholders to show 'good cause' why the privilege should not apply.” Nevertheless, the Garner exception is intended to be a narrow, exacting and difficult standard to satisfy. In its decision, the court noted the nine factors set forth in Garner to consider and balance when determining whether the plaintiff has demonstrated the existence of “good cause.” Delaware courts have identified three of the Garner factors which bear “particular significance.” Those factors are: the colorability of the claim; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; and the apparent necessity or desirability of shareholders having the information and availability of it from other sources. In addition to those three factors, the parties in Salberg focused on “whether the communication is of advice concerning the litigation itself.”