Directors need access to basic information about the corporation they manage in order to fulfill their fiduciary duties. Current directors of a corporation have a near-absolute right to inspect the corporation’s books and records, including the privileged legal advice the corporation seeks and obtains. Recent case law exploring the boundaries of this right illustrates that in practice the analysis is more nuanced. The Appellate Division, First Department, ruled last month in Barasch v. Williams Real Estate,1 that a corporate director and shareholder whose interests are adverse to those of the corporation is not entitled to obtain the corporation’s attorney-client privileged communications concerning that director’s rights. Relatedly, courts continue to debate whether former directors are entitled to obtain privileged communications between the corporation and its lawyers made during their tenure on the board in order to support a post-tenure claim or defense.
Background
A lawyer representing a corporation generally owes professional duties to the entity and not to any officer, director, employee, shareholder or other corporate constituency. Legal constructs are notoriously difficult to reach on the phone, however, and unreliable about appearing at meetings. Like other corporate decisions made day-to-day, decisions about privilege must be made by individuals empowered to act on behalf of the corporation. State corporation laws generally vest management authority in the corporation’s board of directors. Outside the bankruptcy context, corporate management therefore controls the corporate attorney-client privilege, which is normally exercised by its officers and directors. The managers must, of course, exercise the privilege in accordance with their fiduciary duty to act in the best interests of the corporation and not influenced by their individual interests.2 Consequently, directors and officers generally have no right to assert an individual interest in the confidentiality of their communications made on behalf of the corporation.
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