Attorneys – Attorney-Client Privilege – Work Product – Waiver – Advice of Counsel Defense – Corporate Sale – Disparate Shareholder Prices

Richardson v. Frontier Spinning Mills (Lawyers Weekly No. 11-15-1046, 11 pp.) (John R. Jolly Jr., Ch.J.) N.C. Bus. Ct.

Holding: By raising the advice-of-counsel defense as to disparate share pricing, material disclosures in a stock purchase agreement, and otherwise, defendants waived attorney-client and work-product privileges as to (1) the mechanics of and manner in which the stock sale was structured; (2) the manner in which information concerning the sale was disclosed to outside shareholders; (3) the legality of the sale and its structure, including considerations of the disparate pricing structure and the seller-excluded information provision in the stock purchase agreement; (4) the manner and level of information disclosed in or omitted from the stock purchase agreement; and (5) the risks and impact of fiduciary duty considerations on the part of any defendants relative to the sale.

Plaintiffs’ motion to compel discovery is granted as to the issues set out above.

N.C. case law supports a waiver of defendants’ attorney-client privilege as limited above.

The court is not aware of any reported N.C. appellate cases directly on point on the issue of a waiver of work-product privilege via an advice-of-counsel defense. Other jurisdictions have held that, in this context, fairness dictates the necessity for an examination of the underlying good faith and reasonableness of the advice itself and that relevant work product therefore loses its privilege protections.

Since the filing of the defendants’ advice-of-counsel defense resulted in a waiver of the attorney-client privilege between defendants and attorney Jamie Clarke of the firm Moore & Van Allen (MVA), the same filing (i) resulted in a waiver of the work-product privilege and/or (ii) gave rise to a compelling need for discovery by plaintiffs with regard to Clarke’s and MVA’s work product while acting as the defendant-corporation’s legal counsel relative to the stock sale. Therefore, plaintiffs are entitled to discovery, with regard to all notes, documents, e-mails, memoranda, communications or other materials, whether in tangible, electronic or other form, that reflect conversations between any defendants and Clarke, or between Clarke and other attorneys at MVA, that took place on or before the March 17, 2008 closing of the sale and which relate to the issues set out in the first paragraph above.

Plaintiffs may depose defendants and Clark with regard to those issues, and neither defendants nor Clarke shall fail to respond to questions based on attorney-client privilege. Defendants, Clarke, and MVA shall produce requested documents that relate to the above issues. Defendants, Clarke, and MVA shall not fail to respond based on work-product privilege.

Otherwise, plaintiff’s motion to compel discovery is denied.