Meaning
A legal principle governs the disclosure of communications between corporate managers and their attorneys when shareholders sue the corporation’s leadership. Under the Garner doctrine, courts can pierce the corporate attorney-client privilege if shareholders show good cause why the communications should be disclosed. This rule balances the confidentiality needed for legal advice against the fiduciary obligations managers owe to the owners of the firm.
Privilege Limitation
The corporate attorney-client privilege belongs to the entity rather than to the individual officers or directors who run it. Because management represents the shareholders, the Garner doctrine prevents managers from hiding communications that might reveal breach of fiduciary duty or self-dealing. This exception ensures that managers cannot use the company’s own legal shield to conceal actions that harm the owners of the company.
Fiduciary Disclosure
To determine if good cause exists to pierce the privilege, courts analyze several factors, including the number of shareholders bringing the claim and the nature of the allegations. If shareholders can show a colorable claim of fraudulent or illegal behavior by management, corporate legal communications must be produced during the litigation discovery phase. This requirement forces founders to maintain high standards of compliance in their written exchanges with counsel, knowing that these documents could be reviewed by adversarial shareholders.
It also means that oral advice or carefully drafted records are preferred when navigating sensitive structural disputes, since the written record of a legal strategy may later be exposed to the very parties challenging it.
Precedent Application
While originally applied to derivative lawsuits, this principle has extended to other corporate structures where fiduciary relations exist. Founders must realize that legal consultations during corporate disputes are not absolute and can be exposed if the threshold of good cause is met.
