Alerts and Updates
N.Y. Appellate Court Upholds Right of Former Directors and Officers to Corporate Attorney-Client Privileged Documents in Defense of Third Party Action
February 21, 2008
The New York Supreme Court, Appellate Division, First Department, on February 19, 2008, ruled that former officers and directors of a public corporation are entitled to access to memoranda containing legal advice to the corporation. The former directors and officers had asserted as defenses that they had acted in good faith and had relied upon advice of corporate counsel in engaging in the transactions that the government alleged were shams designed to bolster the corporation's financial statements.
In People of the State of New York v. Maurice Greenberg and Howard Smith, 401720/05 (Appellate Division, 1st Dept., Feb. 19, 2008), the New York Appellate Court seized the opportunity to declare that under New York law, former officers and directors have an "unequivocal right" to examine relevant documents and records from the time when they served the corporation:
[T]he fact that Greenberg and Smith are no longer directors is not fatal to their motion to compel where their conduct while directors has been called into question and the inspection is needed to prepare their defense.
Prior to the Appellate Court's ruling, the trial court had denied the former CEO and former CFO of American International Group, Inc., access to the memoranda AIG received from its outside counsel containing legal advice. In reversing that ruling, the Appellate Court bypassed the issue of waiver of any privilege in view of AIG's production of the documents to the SEC in an investigation. The Appellate Court also bypassed the opportunity to simply declare that since AIG is a Delaware corporation and the Delaware Chancery Court had made a similar ruling in June 2007, that ruling governed.
What effect, if any, this court ruling and the earlier one from the Delaware Chancery Court will have on the decisions of corporations to settle governmental actions through agreements that do not resolve potential claims against officers and directors, or on corporations' decisions to terminate such persons as part of settling government actions, remains to be seen.
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