May 26, 2022

Volume XII, Number 146

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Are Directors Joint Clients?

In a ruling this week, Vice Chancellor Lori Will addressed whether one-half of an evenly divided board could gain access  privileged communications between the corporation and its long-time outside counsel.  In re Aerojet Rocketdyne Holdings, 2022 Del. Ch. LEXIS 106.  She ruled that the attorney-client privilege could not be used to deny access to incumbent directors, stating that the "defendants have no greater claim to the Company's privileged than the plaintiffs, who are joint clients of Company counsel".  

The Vice Chancellor's ruling gives no indication that she is applying anything other than Delaware law.   This would seem appropriate in a Delaware court, but shouldn't a choice of law analysis be applied in deciding the scope of outside counsel's engagement?   For example, did the counsel's engagement letter include a choice of law provision?  

I raise the choice of law question because under California's Rules of Professional Conduct, an attorney representing an entity does not automatically represent its directors and officers:

A lawyer employed or retained by an organization shall conform his or her representation to the concept that the client is the organization itself, acting through its duly authorized directors, officers, employees, members, shareholders, or other constituents overseeing the particular engagement.

Rule 1.13(a).  This fact is further elucidated by the requirement:

In dealing with an organization’s constituents, a lawyer representing the organization shall explain the identity of the lawyer’s client whenever the lawyer knows* or reasonably should know* that the organization’s interests are adverse to those of the constituent(s) with whom the lawyer is dealing.

Rule 1.13(f).  As set forth in Rule 1.13(a), a lawyer's constituents includes its directors.  If the corporation's attorney also wishes to represent a director or other constituent, he or she must comply with Rule 1.13(g).   Therefore, had the Vice Chancellor applied California law, I would not automatically conclude that the directors were joint clients of the corporation's attorney.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XII, Number 132
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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