Counsel conducting a corporate internal investigation at the request of the Board of Directors or a Special Committee ordinarily takes great care to create and preserve attorney-client privilege and work-product protection for all material generated during the investigation, including any written reports setting forth findings and any recommendations. An internal investigation conducted to address potential or identified misconduct within the company will be of keen interest to any putative shareholder derivative plaintiff seeking to allege claims on behalf of the company arising from the same purported misconduct.
One avenue of report disclosure potentially available to would-be derivative plaintiffs is the statutory demand for books and records. Two principal grounds to oppose such a request are available to a company: privilege/work product protection and shareholder entitlement under the books and records law. Last month, in Espinoza v. Hewlett-Packard Co.1 the Delaware Supreme Court overturned the practice in many courts and held that determination of whether a shareholder is entitled to inspect particular corporate books and records under DGCL §220 should precede any judicial determination of privilege or work product immunity. The court also provided additional clarity to practitioners concerning the prerequisites for obtaining corporate books and records under §220.
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