Special Investigations - New York May be Starting to Solve the Officer and Director Privilege Problem
While hard cases make bad law, big cases sometimes advance it.
The high-stakes host of litigation arising from accusations that Hank Greenberg and others engaged in sham transactions at AIG to give a deceptively rosy view of its performance has generated two significant decisions recognizing a right in former officers and directors to discover company documents reflecting counsel advice. While Delaware has confirmed its apparent precedent recognizing the right of former officers and directors to obtain privileged company material in defending claims against their former corporate conduct, it has been unclear whether New York would abide by a strict rule that the company may deny such access.
The New York Attorney General and AIG sued Greenberg and his former AIG CFO Howard Smith in New YorkState court. The trial court denied Greenberg and Smith’s discovery demands for production of memoranda of legal advice given to the company during their tenure. Noting that the Delaware Chancery Court had already ruled that Greenberg and Smith could have access to those materials under Delaware law, the Appellate Division of the New York Supreme Court reversed and remanded to the trial court, holding that, as former officers and directors, Greenberg and Smith have a qualified right of access to AIG books and records under New York law where the requested materials are “necessary to protect their personal responsibility interests.” The court noted that former officers and directors have no such qualified right to documents relating to “general business matters.”
While this New York decision appears to overrule AIG’s assertion of privilege to withhold its attorney-client privileged and work-product protected materials from use by former officers and director defendants, the Appellate Division asserts that it has not reached that issue, but has only ruled, under state law giving former officers and directors access to corporate books and records, that Greenberg and Smith may review those materials. Presumably, the use of those materials as evidence will be subject to a later ruling. For the same reason, the Appellate Division avoided the question whether AIG’s privilege had been waived by production of privileged materials to the SEC.
Notwithstanding the Appellate Division’s review of New York law as supporting its holding, at the least, this decision begins the process of reconciling the right of an officer or director in that state to defend her conduct on the basis of advice to the company on which she relied. Particularly with the increase of direct personal securities claims against officers and directors that exceed or avoid insurance coverage, access to such materials is crucial to supporting a defense relying on advice of counsel.
Decisions: The People of the State of New York v. Greenberg, 2008 NY Slip Op 01444 (App. Div. 2/19/08); Teachers’ Retirement System of Louisiana v. Greenbger, C.A. No. 20106 (Del. Chanc. Ct.7/11/07).