Wal-Mart v. IBEW: Delaware Supreme Court Authorizes “Books and Records” Discovery of Internal Investigation Under Section 220 of the Delaware General Corporation Law and Adopts Garner Exception to Attorney-Client Privilege

Sullivan & Cromwell LLP - August 6, 2014

On July 23, 2014, in Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW, the Delaware Supreme Court, in the context of a shareholder inquiry into an internal investigation of alleged bribery by a company subsidiary, affirmed a Chancery Court decision concerning the scope of shareholder “books and records” inspections under Section 220 of the Delaware General Corporation Law (8 Del. C. § 220) and the application of the attorney-client privilege to such inspections.  Although the Court restated the long-standing Delaware law principle that materials sought under Section 220 must be “necessary and essential” to the achievement of a “proper purpose” and that requests under Section 220 must be tailored “with rifled precision,” the Court held that the Chancery Court did not abuse its discretion by requiring Wal-Mart to produce documents from 12 custodians (and their assistants) relating to the internal investigation spanning a seven-year time period.

The Court did not except from this production all attorney-client and work product materials, instead adopting for the first time the “Garner doctrine,” an exception to the attorney-client privilege that entitles stockholders to discovery of certain privileged material in limited circumstances.  The Court held that the doctrine applies both in plenary proceedings in the Delaware state courts and to inspections under Section 220.