Morris v. Spectra Energy Partners (DE) GP, LP, et al., C.A. No. 12110-VCG (Del. Ch. May 7, 2018) (Glasscock, V.C.)
In this letter opinion, the Court of Chancery denied the plaintiff’s motion to compel production of two documents in unredacted form, finding, after in camera review, that the redacted information was properly withheld as privileged and that neither the “at issue” exception nor the Garner exception to the attorney-client privilege applied.
This discovery dispute arose in the context of a challenge to a transfer of certain assets of Spectra Energy Partners, LP (the “Partnership”) to a principal of the Partnership’s general partner, Spectra Energy Partners (DE) GP, LP (the “GP”). The Partnership’s limited partnership agreement (the “LP Agreement”) required the GP to act in good faith with respect to such transfers but eliminated common law fiduciary duties. The plaintiff, a common unitholder of the Partnership, claimed that the GP breached that duty by knowingly approving a transfer of assets for approximately $500 million less than they were worth.
The plaintiff moved to compel the production in unredacted form of two email strings between members of the GP conflicts committee that approved the challenged transaction (the “Conflicts Committee”) and the Conflicts Committee’s counsel and financial advisor. The Court reviewed the two documents in camera and determined that the redacted portions were properly withheld under the attorney-client privilege because the redacted information reflected an inseparable combination of legal and business advice, of which the legal component predominated.
Having found that the redacted information was properly withheld, the Court considered the plaintiff’s arguments that the documents should nonetheless be produced in unredacted form under either the “at issue” exception or the Garner exception to the attorney-client privilege. With respect to the at issue exception, the plaintiff asserted that, in arguing for dismissal of the complaint, the GP put at issue whether the Conflicts Committee viewed “Reduced GP Cash Flow” as a component of consideration in the transaction. The Court rejected this argument, finding that it was the plaintiff who raised this issue in his complaint, and the GP did “not waive the attorney-client privilege simply by advancing arguments for dismissal that respond[ed] to allegations in a pleading.”
The Court next considered application of the Garner exception to the attorney-client privilege. Under Garner, a stockholder asserting breach of fiduciary duty claims may be permitted access to the corporation’s privileged communications when the stockholder shows “good cause” why the privilege should not apply. In a matter of first impression, the Court considered whether the Garner exception applies in circumstances where a limited partnership has eliminated common-law fiduciary duties.
Relying on precedent holding that the Garner exception is limited to circumstances where there is a fiduciary relationship between the party challenging the privilege and the party asserting it, the Court concluded that the Garner exception does not apply where such fiduciary relationships are expressly disclaimed. In so finding, the Court emphasized the policy underlying the Garner exception, which rests on the “mutuality of interest” between a stockholder and a fiduciary when the fiduciary seeks legal advice in connection with actions taken or contemplated in his role as a fiduciary. In such circumstances, the Court reasoned, the stockholder is “the ultimate beneficiary of legal advice sought by fiduciaries qua fiduciaries,” making it appropriate for the stockholder to view the communications reflecting the advice in certain circumstances. The Court recognized that the Garner exception has been applied in situations far removed from stockholder derivative suits (i.e., actions by trust beneficiaries against the trust and trustee, and actions by creditors against a bankruptcy creditor’s committee), but in these cases, a fiduciary relationship existed, establishing the requisite mutuality of interest between the parties.
Because there was no fiduciary relationship between the plaintiff and the GP under the express terms of the LP Agreement, the Court concluded that the mutuality of interest underpinning the Garner exception did not exist, and the Garner exception therefore did not apply.