## Facts

- Shareholders of First American Life Insurance Company of Alabama (FAL) filed a federal class action alleging securities-law violations and common-law fraud in connection with the sale of FAL stock.
- Plaintiffs sought rescission-type recovery for stock purchasers and also asserted claims on behalf of the corporation for harm allegedly caused by the same misconduct.
- In discovery, plaintiffs requested communications between FAL management and corporate counsel concerning the challenged transactions.
- FAL and its management asserted the attorney–client privilege to withhold the requested communications.
- The district court ruled that the corporation could not invoke the attorney–client privilege against its own shareholder-plaintiffs and compelled disclosure.
- FAL sought appellate review of the privilege ruling (and related procedural matters), placing the corporate privilege issue before the Fifth Circuit.

## Issues

1. Whether a corporation may assert the attorney–client privilege against shareholder-plaintiffs seeking corporate counsel communications in litigation alleging officers and the corporation acted against shareholder interests.
2. If the privilege exists, whether and under what standard shareholder-plaintiffs may obtain disclosure of otherwise privileged communications.

## Decision

- The Fifth Circuit rejected an absolute rule barring a corporation from asserting the attorney–client privilege against its shareholders.
- The court held the privilege is qualified in shareholder litigation alleging management acted against shareholder interests: shareholders may obtain disclosure upon a showing of “good cause” in the particular instance.
- The court remanded for the district court to apply the good-cause standard to the specific communications sought and determine whether disclosure was warranted.

## Legal Principles

- A corporation generally holds an attorney–client privilege for communications with its counsel, but the privilege is not absolute when invoked against shareholders suing over alleged fiduciary misconduct.
- In shareholder suits charging management with actions harmful to shareholder interests, the privilege is “subject to the right of stockholders to show cause” why it should not apply to particular communications.
- “Good cause” is assessed by a nonexclusive set of considerations, including: shareholders’ stake and bona fides; whether claims are colorable; necessity of the information and availability from other sources; seriousness and legality of the alleged conduct; whether communications concern the litigation; specificity of requests; and risks of disclosing trade secrets or other sensitive matters.
- The court’s approach requires case-by-case balancing between the policy of encouraging candid legal advice and shareholders’ need for evidence to pursue alleged fiduciary wrongdoing.

## Conclusion

The Fifth Circuit preserved corporate attorney–client privilege while recognizing a qualified fiduciary exception in shareholder litigation, permitting shareholder-plaintiffs to access privileged corporate communications only upon a court-supervised showing of good cause directed to specific materials.


Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970)