Most defendants in corporate fiduciary duty litigation want to say, “My lawyer said it was all right.” They usually avoid making that point for fear of waiving the attorney-client privilege. A recent Court of Chancery decision suggests that it is possible to say your lawyer advised you without opening the door to disclosure of exactly what the lawyer said. Doing so involves walking a tightrope. One slip and you’re waiving your privilege. Yet, the benefits may be worth the risk.

At least in Delaware corporate litigation, in claims that the directors breached their duty to stockholders, the directors’ good faith is critical to the outcome. Usually, the corporation will have the provision in its certificate of incorporation authorized by the Delaware General Corporation Law that exculpates directors for honest errors of judgment. However, that provision cannot bar claims for directors who don’t act in good faith. Hence, being able to say you relied on a lawyer’s advice may be important to demonstrating you acted in good faith. Nonetheless, corporations do not often make the “reliance on counsel” claim for fear of waiving their attorney-client privilege. Whether that fear is really justified by the consequences is another matter, particularly if the lawyer’s advice is sound, complete and consistently favorable. Here, we want to only examine if you can say “advice of counsel,” but not waive the privilege.

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