"Keeping Corporate Lawyers Silent Can Shelter Wrongdoing"

"...Ms. [Maritza I.] Munich was a Walmart lawyer who advocated an aggressive response to investigating the scandal but has been silenced by Walmart, which has invoked the attorney-client privilege to keep her from speaking.

It’s yet another example of how companies use the attorney-client privilege to shelter potential wrongdoing, perhaps to the detriment of many people, including shareholders.

But Ms. Munich may yet have her chance to talk. A recent Delaware court decision may not only allow Ms. Munich to talk about what happened at Walmart, it may give shareholders of all companies a way to sidestep the attorney-client privilege when wrongdoing takes place.

Ms. Munich was the general counsel of Walmart’s international division when Walmart discovered that its employees might have been involved in a sweeping bribery operation in Mexico.

The full details are not known, but according to documents disclosed..., Ms. Munich led the bribery investigation as it unfolded in 2004.

Yet she was stymied in both that investigation and others.

It appears that she argued in 2004 for a fuller investigation into Walmart’s possible misconduct in Mexico and against any executive interference.

She was ignored.

...Ms. Munich resigned in 2006 in the middle of Walmart’s investigation into its Mexico operations. After a few weeks, the investigation was buried by the general counsel of Walmart’s Mexico operations, a man later implicated in the scandal...

...Walmart has asserted that attorney-client privilege. The deliberations of Ms. Munich and others have been guarded as confidential by Walmart.

...Walmart has maintained that not only does the privilege bar its lawyers from speaking, it prevents their documents from being used in court, even if they are disclosed inadvertently.

...That is where things stood until a recent Delaware decision.

The Indiana Electrical Workers Pension Trust Fund, a Walmart shareholder, has taken steps to investigate the Walmart bribery matter to decide whether directors engaged in any wrongdoing.

Robert K. Steel served as a director of Wachovia, President and Chief Executive Officer
from July 9, 2008 to December 31, 2008

As part of this suit, the pension fund issued a demand for documents that Ms. Munich had written that were either confidential or had been leaked but could not be used in court because of the privilege. This type of demand is allowed under corporate law to permit shareholders to determine whether wrongdoing has taken place.

George Hartzman was a Wachovia shareholder
from July 9, 2008 to December 31, 2008

Walmart denied the request, asserting the attorney-client privilege, among other things.

But the Delaware Supreme Court refused to side with Walmart and apply the privilege. Instead, the court said there was an exception to the privilege rule for shareholders. The court also ruled that “the allegations at issue implicate criminal conduct” ...and that the pension fund was a legitimate stockholder. Accordingly, the information “should be produced by Walmart pursuant to [an] exception to the attorney-client privilege.”

...Yet, unless a whistle-blower steps forward, the principle remains strong...

The result is that companies have a great incentive to shift anything hinting at legal trouble to their in-house counsel to ensure that it is protected from disclosure. The in-house legal department thus becomes the “cover-up and damage control” arm of the company.

And so we have a strange situation in which the privilege applies, to be used by companies, unless someone steps forward under a whistle-blower provision...

In this light, the Delaware case is yet another chip in the attorney-client privilege, a sensible one perhaps.

The privilege is important because it allows for people to freely discuss their problems and receive good legal advice. But in the corporate context, it has always been an uneasy mix because the company is owned by its shareholders. If the corporation is doing wrong, the shareholders are the ones who are harmed when they bear the costs. The Delaware court decision sides with shareholders on this matter, allowing them to be the ones to decide whether there is wrong.

...the court decision still requires that the shareholders keep what they find confidential unless the privilege is waived. For now, they can use the information only to decide whether to pursue a claim against the directors of Walmart for failing to adequately supervise the Mexican operations..."

Steven Davidoff Solomon
Professor of Law, University of California, Berkeley
August 26, 2014


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