Garner v. Wolfinbarger

United States Court of Appeals for the Fifth Circuit · 1970 · Corporations

430 F.2d 1093

Updated July 9, 2026

corporationsattorney-client privilegeshareholder suitsderivative actionsfederal evidencecorporate attorney-client privilegeshareholdersgood cause

Facts

Shareholders of FAL sued the corporation and its directors, officers, and controlling persons, alleging securities-law violations and fraud in connection with the issuance and sale of FAL stock. They sought discovery from R. Richard Schweitzer, who had served as the corporation's attorney during the stock transactions and later became its president, about legal advice he gave the corporation and communications made to him before suit was filed. FAL and Schweitzer asserted attorney-client privilege as to deposition questions and some subpoenaed documents. The district court ruled the privilege was unavailable against these shareholder-plaintiffs.

Issue

Whether a corporation may invoke the attorney-client privilege against shareholder-plaintiffs who sue the corporation and its officers for conduct allegedly injurious to shareholder interests. If not absolute, what standard governs when shareholders may overcome the corporation's privilege claim?

Rule

A corporation is not barred from asserting the attorney-client privilege merely because the persons seeking disclosure are shareholders. But where the corporation is sued by its shareholders on charges of acting inimically to shareholder interests, the privilege is subject to the shareholders' right to show good cause why it should not be invoked in the particular instance. In deciding good cause, courts may consider factors including the number and percentage of shareholders involved, their bona fides, the colorability of their claims, the necessity of the information and availability from other sources, the nature and legality of the alleged corporate misconduct, whether the communication concerned past or prospective acts, whether it concerns the litigation itself, how specifically the communications are identified, and the risk of disclosing trade secrets or other confidential information.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

A group of shareholders of Red Mesa Biologics, Inc., based in Phoenix, file a federal securities-fraud and derivative action in federal court in Arizona against the corporation and several directors. They seek emails between the company and outside counsel written before suit about whether planned investor materials omitted material risks. The corporation refuses production, arguing that attorney-client privilege is absolute whenever the requesting parties are suing the corporation.

How should the court rule on the privilege claim?

Explanation. The majority rejected both extremes: the corporation is not barred from asserting privilege merely because the requesters are shareholders, but the privilege is not absolute when shareholders sue alleging conduct inimical to shareholder interests. The court must determine whether the shareholders have shown good cause in the particular instance.