Litigation: Examining the ‘fiduciary exception’ to the attorney-client privilege

The Garner v. Wolfinbarger court set forth nine non-exclusive factors to evaluate whether “good cause” exists

Although its roots are in 19th century English law, the fiduciary exception to the attorney-client privilege was first recognized in the United States in Garner v. Wolfinbarger. The fiduciary exception permits shareholder plaintiffs in certain circumstances to pierce the corporation’s attorney-client privilege and gain access to privileged materials upon a showing of “good cause.” The theory is that because management ultimately manages the corporation for the benefit of its shareholders, the shareholders may pierce the privilege upon a proper showing. This Garner exception has been adopted by the federal courts and most state courts, and has been applied in a variety of fiduciary relationships, including ERISA administrators and beneficiaries, estates, trusts, banks and joint ventures, as well as direct shareholder litigation under limited circumstances. The fiduciary exception does not apply to attorney work product. Piercing of attorney work product is governed by the “substantial need/undue hardship” test.

Garner involved a shareholder derivative action alleging fraud by corporate management and a direct action alleging fraud and violations of securities laws. The plaintiff shareholders sought to depose the former in-house counsel who advised the company on the transactions in issue. Although these communications were privileged, the court held that in the context of a derivative action, shareholders may seek the production of privileged communications relevant to a lawsuit against company management because of the fiduciary duty owed by the corporation to its shareholders. Under the facts of this case, the court held that the former in-house counsel could be compelled to testify about privileged communications, i.e. his advice to the company concerning the matters that were the subject of the litigation.

Contributing Author

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Richard B. Kapnick

Richard (“Brad”) B. Kapnick is a partner at Sidley Austin LLP. He is an experienced attorney serving as lead counsel in complex litigation matters including...

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Contributing Author

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Courtney A. Rosen

Courtney A. Rosen is a partner at Sidley Austin LLP. She is an experienced attorney whose practice includes complex litigation matters including matters involving the...

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