Wal-Mart’s whistle-blower problem: Public revelations trump privilege
Attorney-client privilege confers powerful protection over confidential corporate documents. But according to arulingThursday by Chancellor Leo Strine of Delaware Chancery Court, once documents have become public – even if by dubious means – they can be used in litigation.
In May of 2012, shareholder lawyer Stuart Grant of Grant & Eisenhofer opened a thick packet he’d received in the mail. On behalf of clients, Grant had recently sent a demand for information to Wal-Mart, following up on The New York Times’ stunning revelations about the company’s attempt to shut down an internal investigation of alleged bribery of Mexican officials. Wal-Mart lawyers had said they would respond to Grant’s books-and-records demand, and Grant told me in an interview that he at first thought the envelope contained that response. Grant quickly realized that the mailing was not, in fact, official corporate correspondence: He had been sent a 190-page trove of confidential Wal-Mart documents.
“Immediately our reaction was, ‘What are our obligations?’ We did research, we did everything we needed to do,” Grant said. After determining that the return address on the packet was a fake, Grant notified Wal-Mart that he’d received the documents on June 1, 2012.
For Wal-Mart, Grant’s letter must have produced a familiar sinking feeling. Since early 2007, the company has been trying to stopper leaks of information. Wal-Mart believes the leaks have all come from Bruce Gabbard, a former computer security tech who was fired for monitoring phone conversations between Wal-Mart employees and The New York Times. The company asserts that Gabbard took terabytes of documents with him when he departed and has disseminated that confidential information despite court orders in Arkansas and Oklahoma that forbid him from doing so. (As the Times reported in 2011, Gabbard has not been prosecuted for his supposed theft, though an Arkansas judge has ordered him to be arrested for questioning in Wal-Mart’s civil suit if he ever returns to the company’s home state.)
Nothing has ever tied Gabbard specifically to the anonymous mailing Stuart Grant received. Nevertheless, the company insisted that he hand over the documents. Grant, who refers to his anonymous benefactor as a whistle-blower, sent copies but retained the originals. “They said, ‘We have an order restraining the guy who sent the documents to you,'” Grant told me. “We said, ‘Show us where these documents are related.'”
Grant believed he had a right to use the whistle-blower documents in his pretrial brief and exhibits in the books-and-records case. Many of the materials, after all, had already been made public via The New York Times and a Congressional investigation prompted by the Times story on the Mexican bribes. Besides, Wal-Mart had indirectly disclosed some of the purportedly confidential information in court filings in Arkansas, where it attached Delaware shareholder complaints in a motion seeking to stay parallel litigation.
Wal-Mart and its lawyers at Gibson, Dunn & Crutcher and Potter, Anderson & Corroon did not see things the same way as Grant. In March, the company moved to strike portions of the shareholders’ brief. More broadly, Wal-Mart argued that Grant should not be permitted to cite privileged documents even if the material has already become public. The company had no means of stopping either The New York Times or Congress from posting privileged documents, even if they were originally stolen from the company. But Wal-Mart believed Grant should not benefit from what it considered laundering of privileged material through Congress and the media.
Grant’s response brief argued that the documents had already lost whatever privilege they might have enjoyed (and, according to Grant, Wal-Mart’s privilege log actually identified only five of the disputed documents as privileged). Wal-Mart waived privilege when it failed to take formal action to recover the material sent to Grant, the shareholder brief said, and when the company refiled plaintiffs’ complaints in federal court in Arkansas. (Grant also surmised that Wal-Mart had also turned over the documents to Justice Department and Securities and Exchange Commission lawyers investigating the bribery allegations.) The documents themselves were available to anyone with an Internet connection, the brief said, which distinguishes this case from precedent in which courts have upheld privilege when news accounts referenced but did not link directly to documents. And finally, shareholders argued that the crime-fraud exception to privilege applies even if the material is confidential.
In a discursive opinion from the bench, Strine said that any documents that are available through the Times or congressional websites are fair game for shareholders. The chancellor said he didn’t want to undermine the concept of privilege because he believes that it encourages corporations to seek advice from counsel, but that it would be “ridiculous” to hold that privilege still extends to “actual documents … on two public websites,” especially since Wal-Mart had essentially republished the documents in an Arkansas filing.
“I don’t believe I’m making any kind of new shocking rule of law to suggest that when documents are on Congressional websites and on The New York Times and when those documents have been referred to by the party seeking them to be stricken from the public record and to be kept out of evidence, that this court will not blind itself to that,” Strine said.
The chancellor also said, however, that Grant must return to Wal-Mart documents that are not already available publicly – a holding that Wal-Mart must be happy about. Strine referred specifically to four documents cited in Grant’s pretrial briefing that haven’t previously been made public, but Wal-Mart contends that a lot of additional material Grant received is privileged and non-public. Strine’s ruling would appear to restrict Grant’s use of that material, at least temporarily. (Wal-Mart counsel at Gibson Dunn declined to comment.)
On Monday, Grant and Wal-Mart will be back before Strine for the actual books-and-records trial, which will determine exactly what Wal-Mart must produce to Grant & Eisenhofer. (Strine has previously limited the scope of discovery to documents related to the current board’s ability to make independent judgments about the alleged Mexican bribery.) After Grant & Eisenhofer obtains that information, it and two other plaintiffs’ firms in the consolidated derivative litigation in Delaware are expected to file an amended complaint accusing the Wal-Mart board of breaching its duty to shareholders. (The parallel Arkansas derivative case has been stayed.)
Grant told me his trial presentation in the books-and-records case won’t suffer at all from the loss of the four documents that haven’t already been disclosed publicly. He also said that he expects Strine ultimately to find that Wal-Mart’s privilege over all of the material he received is gone. “This was a very good outcome for us,” he said. “It’s a prelude to Monday. Strine understands what’s going on here.”
For more of my posts, please go to Thomson Reuters News & Insight